Gold Price as Another Determinant of Demand for International Reserves

Various authors have tried to verify the importance of different variables in the reserve demand equation. This article introduces a new independent variable, the gold price, into the reserve demand function. By pooling cross‐section and time‐series (quarterly) data for 19 industrial countries over the 1973–1981 period, a reserve demand equation is estimated. It is concluded that the price of gold exerts a significantly negative effect on the demand for international liquidity.