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What Policy Combinations Worked? The Effect of Policy Packages on Bank Lending during COVID-19

Author

Listed:
  • Martínez Pería, Maria Soledad
  • Kirti, Divya
  • Mishra, Prachi
  • Stráský, Jan

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.

Suggested Citation

  • Martínez Pería, Maria Soledad & Kirti, Divya & Mishra, Prachi & Stráský, Jan, 2023. "What Policy Combinations Worked? The Effect of Policy Packages on Bank Lending during COVID-19," CEPR Discussion Papers 17880, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17880
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    Keywords

    COVID-19;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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