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Impacts of Monetary Stimulus on Credit Allocation and the Macroeconomy: Evidence from China

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

NBER Working Paper No. 22650
Issued in September 2016, Revised in June 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Finance and Macroeconomics Program, Monetary Economics Program, Political Economy Program

We construct a micro dataset that covers all newly originated bank loans by the 19 largest Chinese banks to individual firms and spans all sectors in the Chinese economy. We propose a two-stage framework comprised of a macro SVAR model and a dynamic panel model to estimate the average and aggregate effects of the 2009 monetary stimulus on the macroeconomy and credit allocation to SOEs and non-SOEs across key sectors. The two-stage framework is vital for obtaining the aggregate effects from the micro model. While credit expansion due to monetary stimulus favored the average SOE in manufacturing, non-SOEs enjoyed preferential credit treatment in real estate. There was no obvious favoritism of credit allocation toward the average SOE in infrastructure. In aggregate, non-SOEs are quantitatively as important as SOEs in understanding the dynamic effects of monetary stimulus on credit allocation. Our findings of credit allocation underlie an intertemporal tradeoff between short-term growth and long-term indebtedness in response to large monetary interventions.

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Document Object Identifier (DOI): 10.3386/w22650

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