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

Kaiji Chen, Haoyu Gao, Patrick Higgins, Daniel Waggoner and Tao Zha

No 27763, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how a fiscal expansion via infrastructure investment influences the dynamic impacts of monetary stimulus on credit allocation. We develop a two-stage approach and apply it to the Chinese economy with a confidential loan-level dataset that covers all sectors. We find that infrastructure investment significantly weakened monetary policy's transmission to credit allocated to private firms, while reinforcing the monetary effects on loans to state-owned firms. This fiscal-monetary interaction channel is key to understanding the preferential credit access enjoyed by state-owned firms during the stimulus period. Consequently, monetary stimulus crowded out private investment and lowered efficiency in capital allocation.

JEL-codes: C13 C3 E02 E5 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-cna, nep-mac, nep-mon and nep-tra
Note: EFG ME
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Published as KAIJI CHEN & HAOYU GAO & PATRICK HIGGINS & DANIEL F. WAGGONER & TAO ZHA, 2023. "Monetary Stimulus amidst the Infrastructure Investment Spree: Evidence from China's Loan‐Level Data," The Journal of Finance, vol 78(2), pages 1147-1204.

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Journal Article: Monetary Stimulus amidst the Infrastructure Investment Spree: Evidence from China's Loan‐Level Data (2023)
Working Paper: Monetary Stimulus amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data (2020)
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