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

Issaoui, Ibtissem (2022): Central Bank Balance Sheet Policies and Crowding-Out Effect: Evidence from Lower-Middle Income Economies.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Central Bank Balance Sheet; Crowding-Out Effect; Government Securities; Pri- vate Credit; Lower-Middle Income Economies; Panel VAR.
• Subjects: C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

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