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Central Bank Balance Sheet Policies and Crowding-Out Effect: Evidence from Lower-Middle Income Economies

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  • Issaoui, Ibtissem

Abstract

This study delves into the role that the central bank’s balance sheet policy might play in the crowding-out effect of government financing on private credit in lower-middle-income economies (LMIEs). The paper finds a negative relationship between banks’ credit to the private sector and their holdings of government securities. This crowding-out effect reflects a shift in banks’ portfolios toward more secure and liquid public assets during times of crisis. Furthermore, I find that the central bank’s balance sheet policy has a positive effect on banks’ holdings of government securities. This result can be explained by the weak credit market institutions prevalent in LMIEs.

Suggested Citation

  • Issaoui, Ibtissem, 2022. "Central Bank Balance Sheet Policies and Crowding-Out Effect: Evidence from Lower-Middle Income Economies," MPRA Paper 127471, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:127471
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    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • 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
    • 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
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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