this paper studies the demand for China''s foreign exchange reserves. Previous research using econometric models in this area has a common problem that demand was replaced by the actual holdings, namely， assuming foreign exchange reserves achieve equilibrium at any time. In order to avoid the problem, the current study builds a dynamic demand model of China''s foreign exchange reserves by the method of disequilibrium. Through the empirical analysis using the data from 1978 to 2007, we find that the scale of China''s foreign exchange reserves are determined by gross domestic product (GDP), the dependence on foreign trade and investment rate. GDP and the dependence on foreign trade have a positive impact on China''s foreign exchange reserves while investment rate has a negative impact. Furthermore, according to the dynamic demand model, we estimate the speed of the dynamic adjustment of China''s foreign exchange reserves.
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