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Reserve Accumulation and Firm Investment: Evidence from Matched Bank–Firm Data

Woo Jin Choi (), Ju Hyun Pyun () and Youngjin Yun ()

No GRU_2020_027, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: We match non-financial firms in Korea with their main banks for the period over 2003-2017 to examine whether and how corporate investments are affected by changes in international reserves. We first show that firm investment is negatively associated with international reserves. By tracing the public securities used for sterilization, we further show that investment of a non-financial firm reduces if its main bank increases public securities holdings in accordance with reserve accumulation. Massive supply of sterilization securities shifts banks’ balance sheet composition and adversely affects investments, especially for financially constrained firms.

Keywords: FX reserves; sterilized intervention; firm investment; bank balance sheet (search for similar items in EconPapers)
JEL-codes: C23 E22 E58 F21 F31 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020-11-15
New Economics Papers: this item is included in nep-cba, nep-cfn, nep-fdg and nep-mac
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