Working Paper: NBER ID: w27763
Authors: Kaiji Chen; Haoyu Gao; Patrick C. Higgins; Daniel F. Waggoner; Tao Zha
Abstract: We study how a fiscal expansion via infrastructure investment influences the dynamic impacts of monetary stimulus on credit allocation. We develop a two-stage approach and apply it to the Chinese economy with a confidential loan-level dataset that covers all sectors. We find that infrastructure investment significantly weakened monetary policy's transmission to credit allocated to private firms, while reinforcing the monetary effects on loans to state-owned firms. This fiscal-monetary interaction channel is key to understanding the preferential credit access enjoyed by state-owned firms during the stimulus period. Consequently, monetary stimulus crowded out private investment and lowered efficiency in capital allocation.
Keywords: Monetary Policy; Fiscal Policy; Infrastructure Investment; Credit Allocation; China
JEL Codes: C13; C3; E02; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Infrastructure investment (H54) | Effectiveness of monetary policy for nonsoes (E69) |
| Infrastructure investment (H54) | Effectiveness of monetary policy for soes (E69) |
| Monetary stimulus (E52) | Credit allocation to soes (H81) |
| Monetary stimulus (E52) | Credit allocation to nonsoes (H81) |
| Fiscal expansion via infrastructure investment (H54) | Effectiveness of monetary stimulus (E52) |
| Fiscal expansion via infrastructure investment (H54) | Credit allocation to soes (H81) |
| Fiscal expansion via infrastructure investment (H54) | Credit allocation to nonsoes (H81) |
| Interaction between fiscal and monetary policies (E63) | Preferential credit access for soes (H81) |