State-Run Banks, Money Growth, and the Real Economy
Randall Morck2019, Management Science
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Abstract
Within countries, individual state-run banks' lending correlates with prior money growth; similar private-sector banks' lending does not. Aggregate credit and investment growth correlate with prior money growth more where banking systems are more state-run. Size and liquidity differences between state-run and private-sector banks do not drive these results; further tests discount broad classes of alternative explanations. Tests exploiting heterogeneity in political pressure on state-run banks associated with privatizations and elections suggest a command-and-control pseudo-monetary policy channel: changes in money growth, perhaps reflecting political pressure on the central bank, change banks' lending constraints; political pressure actually changes state-run banks' lending.
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Within countries, individual state-run banks’ lending correlates with prior money growth; similar private-sector banks’ lending does not. Aggregate credit and investment growth correlate with prior money growth more where banking systems are more state-run. Size and liquidity differences between sta
2018
Within countries, individual state-run banks’ lending correlates with prior money growth; similar private-sector banks’ lending does not. Aggregate credit and investment growth correlate with prior money growth more where banking systems are more state-run. Size and liquidity differences between state-run and private-sector banks do not drive these results; further tests discount broad classes of alternative explanations. Tests exploiting heterogeneity in political pressure on state-run banks associated with privatizations and elections suggest a command-and-control pseudomonetary policy channel: changes in money growth, perhaps reflecting political pressure on the central bank, change banks’ lending constraints; political pressure actually changes state-run banks’ lending.
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We thank William L. Megginson for sharing his privatization data. We thank Timothy Trombley for superb research assistance. Morck gratefully acknowledge funding from the SSHRC and the Bank of Canada. Yavuz gratefully acknowledges support from a CIBER Research Grant. These are the views of the authors and may not reflect those of the Bank of Canada. These are the views of the authors and may not reflect those of the Bank of Canada or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
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