China's Foreign Exchange Reserves from the Perspective of Principal Component Analysis

Abstract

This article selects the relevant ingredient such as the scale of China’s foreign exchange reserves, including China’s GDP, China’s M2, China’s FDI, China’s external debt balance, China’s import-export trade balance and so on. To deal with the problem of multi-collinearity between ingredients, the idea of dimensionality reduction is adopted, and the influencing ingredient that influence the scale of China's foreign exchange reserves are effectively reflected by effective factors, and principal component analysis and factor regression analysis are used for empirical analysis. The results of this study provide useful theoretical exploration for the increase of it.