Optimal currency composition of foreign exchange reserve during financial crisis

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

Abstract

The paper makes analysis of the optimal currency composition of international reserves based on Markowitz mean-variance model using Monte Carlo simulation for solution. We calculate US dollar and Euro as the two major reserve currencies for 2007 through 2009, which is also the financial crisis stage. The model suggests to decrease US dollar in late 2007 and to increase US dollar in mid 2008. Our findings are consistent with the data of UK's Bank of England and China's central bank. The results proves mean-variance model to be effective in offering central banks guide towards making decisions on the adjustment of the optimal weight of reserve currencies to achieve the minimum risks.

Original languageEnglish
Title of host publication2010 International Conference on E-Product E-Service and E-Entertainment, ICEEE2010
DOIs
StatePublished - 2010
Event2010 International Conference on E-Product E-Service and E-Entertainment, ICEEE2010 - Henan, China
Duration: 7 Nov 20109 Nov 2010

Publication series

Name2010 International Conference on E-Product E-Service and E-Entertainment, ICEEE2010

Conference

Conference2010 International Conference on E-Product E-Service and E-Entertainment, ICEEE2010
Country/TerritoryChina
CityHenan
Period7/11/109/11/10

Keywords

  • Foreign exchange reserve
  • Mean-variance model
  • Optimization
  • Simulation

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