NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

State-run Banks, Money Growth, and the Real Economy

Randall Morck, M. Deniz Yavuz, Bernard Yeung

NBER Working Paper No. 19004
Issued in April 2013
NBER Program(s):   CF

Aggregate credit and investment growth correlate with prior money growth more strongly in economies whose banking systems are more fully state-run. Within countries, individual state-run banks’ lending correlates with prior money growth, while otherwise similar private-sector banks’ lending does not. Tests exploiting heterogeneity in likely political pressure on state-run banks associated with, e.g. central bank independence, privatizations, and election years, are consistent with a higher correlation of state-run banks’ lending with prior money growth if political pressure is stronger. These findings are consistent with a command-and-control channel of monetary stimulus transmission operating via state-run banks.

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This paper was revised on January 19, 2016

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Document Object Identifier (DOI): 10.3386/w19004

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