Working Paper: NBER ID: w29303
Authors: Joshua Aizenman; Yinwong Cheung; Xingwang Qian
Abstract: We examine the effects of active international reserve management (IRM) conducted by central banks of emerging market economies (EMEs) on firm investment in the presence of global financial shocks. Using firm-level data from 46 EMEs from 2000 to 2018, we document three findings. First, active IRM is found to affect firm investment positively. The effect strengthens when the magnitude of adverse external financial shocks increases. Second, financially constrained firms, compared to unconstrained ones, are less responsive to active IRM. Third, we find that 30% of the causal effect of IRM on firm investment is mediated through the country credit spread channel.
Keywords: international reserves; firm investment; emerging markets; financial shocks; active management
JEL Codes: F36; F42; F61; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial constraints (D10) | Active IRM effect on firm investment (G31) |
| Capital controls and exchange rate management (F33) | Active IRM effect on firm investment (G31) |
| country spreads (R12) | firm investment (G32) |
| Active IRM (Y50) | firm investment (G32) |
| Active IRM (Y50) | firm investment (G32) |