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

Journal of Finance, 2023, vol. 78, issue 2, 1147-1204

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 data set 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 decreased capital allocation efficiency.

Date: 2023
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https://doi.org/10.1111/jofi.13204

Related works:
Working Paper: Monetary Stimulus amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data (2020)
Working Paper: Monetary Stimulus Amidst the Infrastructure Investment Spree: Evidence from China's Loan-Level Data (2020)
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