Monetary Stimulus Amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data

80 Pages Posted: 20 Apr 2021

See all articles by Kaiji Chen

Kaiji Chen

Emory University - Department of Economics; Federal Reserve Bank of Atlanta

Haoyu Gao

Renmin University of China

Patrick C. Higgins

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Daniel F. Waggoner

Federal Reserve Bank of Atlanta

Tao A. Zha

Federal Reserve Bank of Atlanta; Emory University

Date Written: August 2020

Abstract

We study the impacts of the 2009 monetary stimulus and its interaction with infrastructure spending on credit allocation. We develop a two-stage estimation approach and apply it to China's loan-level data that covers all sectors in the economy. We find that except for the manufacturing sector, monetary stimulus itself did not favor state-owned enterprises (SOEs) over non-SOEs in credit access. Infrastructure investment driven by nonmonetary factors, however, enhanced the monetary transmission to bank credit allocated to local government financing vehicles in infrastructure and at the same time weakened the impacts of monetary stimulus on bank credit to non-SOEs in sectors other than infrastructure.

Keywords: infrastructure investment; monetary policy transmission; fiscal shocks; policy interaction; credit reallocation; LGFVs

JEL Classification: E5, E02, C3, C13

Suggested Citation

Chen, Kaiji and Gao, Haoyu and Higgins, Patrick C. and Waggoner, Daniel F. and Zha, Tao A., Monetary Stimulus Amid the Infrastructure Investment Spree: Evidence from China's Loan-Level Data (August 2020). FRB Atlanta Working Paper No. 2020-16, Available at SSRN: https://ssrn.com/abstract=3829893 or http://dx.doi.org/10.2139/ssrn.3829893

Kaiji Chen (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

HOME PAGE: http://https://sites.google.com/site/chenkaiji/research

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
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Haoyu Gao

Renmin University of China ( email )

Mingde main building
Haidian district, No. 59,
Beijing, Beijing 100872
China

Patrick C. Higgins

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Daniel F. Waggoner

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8278 (Phone)

Tao A. Zha

Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States
404-521-8353 (Phone)
404-521-8956 (Fax)

Emory University ( email )

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Atlanta, GA 30322
United States

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