The Demand for International Reserves and Exchange Rate Adjustments: The Case of LDCs, 1964-1972.

In this paper, the demand for international reserves by less developed countries is analyzed making an explicit distinction between countries that have maintained a fixed exchange rate for a long period of time and countries that have occasionally used devaluations as a means to correct payments imbalances. The results obtained indicate that both groups of countries have different demand functions for international reserves, with devaluation countries holding, on average, less reserves, and that they should not be pooled, as has often been done. Furthermore, the results indicate that the demand for international reserves function for those LDCs that have maintained a fixed exchange rate is very similar to estimates previously obtained by other authors (i.e. Frenkel, 1980) for developed countries. [ABSTRACT FROM AUTHOR]