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International Reserve Management and Firm Investment in Emerging Market Economies


  • Joshua Aizenman
  • Yin-Wong Cheung
  • Xingwang Qian


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 four findings. First, active IRM is found to affect firm investment positively. The effect strengthens when the size of adverse external financial shocks increases. Second, financially constrained firms, compared to unconstrained ones, are less responsive to active IRM. Third, we quantify the causal effect of IRM on firm investment and find that 30% of it is mediated through the country spread channel. Fourth, capital controls and exchange rate management complement the IRM.

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  • Joshua Aizenman & Yin-Wong Cheung & Xingwang Qian, 2021. "International Reserve Management and Firm Investment in Emerging Market Economies," NBER Working Papers 29303, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:29303
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    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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