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State-run Banks, Money Growth, and the Real Economy

  • Randall Morck
  • M. Deniz Yavuz
  • Bernard Yeung

Aggregate credit and investment growth correlate with prior money growth more strongly in economies whose banking systems are more fully state-run. Within countries, individual state-run banks’ lending correlates with prior money growth, while otherwise similar private-sector banks’ lending does not. Tests exploiting heterogeneity in likely political pressure on state-run banks associated with, e.g. central bank independence, privatizations, and election years, are consistent with a higher correlation of state-run banks’ lending with prior money growth if political pressure is stronger. These findings are consistent with a command-and-control channel of monetary stimulus transmission operating via state-run banks.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19004.

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Date of creation: Apr 2013
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Handle: RePEc:nbr:nberwo:19004
Note: CF
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