Author
Woo Jin Choi (University of Seoul, Email:wooj.choi@gmail.com)
Ju Hyun Pyun (Korea University, Corresponding Author, Email:jhpyun@korea.ac.kr)
Youngjin Yun (Inha University, Corresponding Author, Email:youngjin.yun@outlook.com)
Abstract
A central bank’s accumulation of foreign reserves can reallocate domestic savings and influence investments across different firms. Leveraging institutional features in Korea and connecting firms to their lending banks for the 2004-2019, we examine how reserve accumulation and sterilization impact credit allocation within the banking system and firm investment. We track the bonds issued by the central bank to sterilize/fund reserve purchases. Different banks take varying amounts of sterilization bonds, and those more responsive adjust their loan supply to firms. As a result, firms heavily dependent on these banks for credit decrease investment during reserve accumulation.
Keywords : international reserves, sterilized intervention, firm investment, bank balance sheet
Link to the paper : https://drive.google.com/file/