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International Reserve Management and Firm Investment in Emerging Market Economies

Author

Listed:
  • Joshua Aizenman

    (University of Southern California)

  • Yin-Wong Cheung

    (University of California)

  • Xingwang Qian

    (SUNY Buffalo State University)

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.

Suggested Citation

  • Joshua Aizenman & Yin-Wong Cheung & Xingwang Qian, 2025. "International Reserve Management and Firm Investment in Emerging Market Economies," Open Economies Review, Springer, vol. 36(2), pages 503-540, April.
    • Handle: RePEc:kap:openec:v:36:y:2025:i:2:d:10.1007_s11079-024-09768-3
    DOI: 10.1007/s11079-024-09768-3
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    More about this item

    Keywords

    F3; F36; F42; F61; G31;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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