Working Paper: NBER ID: w19004
Authors: Randall Morck; M. Deniz Yavuz; Bernard Yeung
Abstract: Within countries, state-run banks’ lending correlates with prior money growth; otherwise similar private-sector banks’ lending does not. Aggregate credit and investment growth correlate with prior money growth more where banking systems are more state-run. Size and liquidity differences between state-run and private-sector banks do not drive these results; further tests discount broad classes of alternative explanations. Tests exploiting heterogeneity in likely political pressure on state-run banks associated with privatizations and elections suggest a command-and-control pseudo-monetary policy channel: changes in money growth, perhaps reflecting political pressure on the central bank, change banks’ lending constraints; political pressure actually changes state-run banks’ lending.
Keywords: State-run banks; Money growth; Real economy; Pseudomonetary policy
JEL Codes: E5; G1; G21; G28; G3; O16; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| political pressure (D72) | lending by state-run banks (G21) |
| political pressure before elections (D72) | lending by state-run banks (G21) |
| money growth (O42) | lending by state-run banks (G21) |
| state-run banks (G21) | real economic activity (E39) |
| money growth (O42) | aggregate credit growth (O40) |
| money growth (O42) | lending by private-sector banks (G21) |