Working Paper: CEPR ID: DP17880
Authors: Divya Kirti; Maria Soledad Martinez Peria; Prachi Mishra; Jan Strasky
Abstract: This paper analyzes the impact of fiscal, monetary, and prudential policies during the COVID-19 pandemic on bank lending across a broad sample of countries. We combine a comprehensive announcement-level dataset of policy actions with bank and firm-level information to analyze the effectiveness of different types of policies. We document that different types of policies were introduced together and hence accounting for policy combinations, or packages, is crucial. Lending grew faster at banks in countries that announced packages combining fiscal, monetary, and prudential measures relative to those that relied on some, but not all, policy dimensions. Within packages including all three types of policy measures, banks in countries with more and larger measures saw faster loan growth. The impact was larger among more constrained banks with low equity levels. Large packages combining fiscal, monetary and prudential policies also increased liquidity for bank dependent firms, but did not disproportionately benefit unviable firms.
Keywords: COVID-19; Policy Packages; Policy Effectiveness; Bank Lending
JEL Codes: E52; E58; E62; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Comprehensive packages of fiscal, monetary, and prudential measures did not disproportionately benefit unviable firms (E69) | Absence of confounding effects (C90) |
| Comprehensive packages of fiscal, monetary, and prudential measures (E63) | Faster loan growth at banks (G21) |
| Comprehensive packages of fiscal, monetary, and prudential measures (E63) | Increased loan growth among more constrained banks with low equity levels (G21) |
| Large packages combining all three policy types (G52) | Additional liquidity to bank-dependent firms (G21) |