State-Run Banks, Money Growth, and the Real Economy
Randall Morck, M. Deniz Yavuz, Bernard Yeung
Management Science · 2019 · Volume 65 · Issue 12
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.
Keywords
state run banks, monetary policy, loan growth, capital spending, monetary stimulus, banking
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