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

Ibtissem Issaoui

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Central Bank Balance Sheet; Crowding-Out Effect; Government Securities; Pri- vate Credit; Lower-Middle Income Economies; Panel VAR. (search for similar items in EconPapers)
JEL-codes: C3 E52 E58 G21 G28 O16 (search for similar items in EconPapers)
Date: 2022-07-16
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:127471

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