State-Run Banks, Money Growth, and the Real Economy
Abstract
Within countries, individual state-run banks’ lending correlates with prior money growth; 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 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.
This paper was accepted by Tomasz Piskorski, finance.
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Published: 01 December 2019
Accepted: 16 April 2018
Received: 05 September 2017
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