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Economic Change and Restructuring

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01.03.2013

Accumulation of large foreign reserves in China: a behavioural perspective

verfasst von: Zhichao Zhang, Frankie Chau, Li Xie

Erschienen in: Economic Change and Restructuring | Ausgabe 1/2013

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Abstract

The massive accumulation of foreign reserves by China has challenged the conventional thinking about prudent reserve management. This paper develops a behavioural model of optimal decision making under uncertainty to explain the observed Chinese reserve policy. Departing from the conventional approach to utility maximisation based on the agent’s rationality, this paper explicitly models the behaviour of Chinese central banker who is influenced by loss aversion and narrow framing. Embedding the cognitive biases into the precautionary savings approach to holding reserves, the paper shows the behavioural optimality of Chinese reserve build-up and provides a plausible explanation of the dynamics of reserve accumulation in China, hence help make sense of the puzzling Chinese reserve policy.

Vorheriger Artikel Convertibility as a step for the RMB internationalization

Nächster Artikel The evolution of China’s social policies

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Titel: Accumulation of large foreign reserves in China: a behavioural perspective
verfasst von: Zhichao Zhang
Frankie Chau
Li Xie
Publikationsdatum: 01.03.2013
Verlag: Springer US
Erschienen in: Economic Change and Restructuring / Ausgabe 1/2013
Print ISSN: 1573-9414
Elektronische ISSN: 1574-0277
DOI: https://doi.org/10.1007/s10644-012-9136-1

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