Monetary Stimulus amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data

We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loan-level data that covers all sectors in the economy. We find that except for the manufacturing sector, monetary stimulus itself did not favor state-owned enterprises (SOEs) over non-SOEs in credit access. Infrastructure investment driven by nonmonetary factors, however, enhanced the monetary transmission to bank credit allocated to local government financing vehicles in infrastructure and at the same time weakened the impacts of monetary stimulus on bank credit to non-SOEs in sectors other than infrastructure. JEL classification: E5, E02, C3, C13 Key words: infrastructure investment, monetary policy transmission, fiscal shocks, policy interaction, credit reallocation, LGFVs
Working Paper 2020-16 August 2020 I. Introduction During economic crises such as the 2008 global financial crisis, central banks around the world (Federal Reserve System, European Central Bank, Bank of [...]