International Reserve Management and Firm Investment in Emerging Market Economies
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.
Non-Technical Summaries
- Analysis of the behavior of 21,447 firms in 46 emerging economies finds active central bank management of international reserves...
More from NBER
In addition to working papers, the NBER disseminates affiliates’ latest findings through a range of free periodicals — the NBER Reporter, the NBER Digest, the Bulletin on Retirement and Disability, the Bulletin on Health, and the Bulletin on Entrepreneurship — as well as online conference reports, video lectures, and interviews.
