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

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Listed:
  • Kaiji Chen
  • Haoyu Gao
  • Patrick C. Higgins
  • Daniel F. Waggoner
  • Tao Zha

Abstract

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.

Suggested Citation

  • Kaiji Chen & Haoyu Gao & Patrick C. Higgins & Daniel F. Waggoner & Tao Zha, 2020. "Monetary Stimulus amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data," FRB Atlanta Working Paper 2020-16, Federal Reserve Bank of Atlanta.
    • Handle: RePEc:fip:fedawp:89447
    DOI: 10.29338/wp2020-16
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    More about this item

    Keywords

    infrastructure investment; monetary policy transmission; fiscal shocks; policy interaction; credit reallocation; LGFVs;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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