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© 2023 International Monetary Fund
WP/23/25
IMF Working Paper Research Department
What Policy Combinations Worked?
The Effect of Policy Packages on Bank Lending during COVID-19
Prepared by Divya Kirti, Soledad Martinez Peria, Prachi Mishra, and Jan Strasky*
Authorized for distribution by Giovanni Dell’Ariccia
January 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate., The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: This paper analyzes the impact of fiscal, monetary, and prudential policies during the COVID-19 pandemic on bank lending across a broad sample of countries. We combine a comprehensive announcement-level dataset of policy actions with bank and firm-level information to analyze the effectiveness of different types of policies. We document that different types of policies were introduced together and hence accounting for policy combinations, or packages, is crucial. Lending grew faster at banks in countries that announced packages combining fiscal, monetary, and prudential measures relative to those that relied on some, but not all, policy dimensions. Within packages including all three types of policy measures, banks in countries with more and larger measures saw faster loan growth. The impact was larger among more constrained banks with low equity levels. Large packages combining fiscal, monetary and prudential policies also increased liquidity for bank dependent firms, but did not disproportionately benefit unviable firms.
| JEL Classification Numbers: | E52, E58, E62, G21, G28 |
| Keywords: | COVID-19, policy packages, policy effectiveness, bank lending |
| Author’s E-Mail Address: | dkirti@imf.org, mmartinezperia@imf.org, pmishra@imf.org, jan.strasky@oecd.org |
| JEL Classification Numbers: | E52, E58, E62, G21, G28 |
| Keywords: | COVID-19, policy packages, policy effectiveness, bank lending |
| Author’s E-Mail Address: | dkirti@imf.org, mmartinezperia@imf.org, pmishra@imf.org, jan.strasky@oecd.org |
Title Page
WORKING PAPERS
What Policy Combinations Worked?
The Effect of Policy Packages on Bank Lending during COVID-19
Prepared by Divya Kirti, Soledad Martinez Peria, Prachi Mishra, and Jan Strasky
Jan Strasky was previously at the IMF. We are grateful to Giovanni Dell’Ariccia, Andrew Metrick (discussant), Raghuram Rajan, Yunhui Zhao, and seminar participants at the 5th IMF Annual Macro-Financial Research Conference, and IBRN for valuable comments and suggestions. Ariadne Checo de los Santos, Dalya Elmalt, Chenxu Fu, Yang Liu, Fujie Wang, and Gianluca Yong Gonzalez provided excellent research assistance. All errors remain our own. The views expressed here are those of the authors and do not necessarily represent those of the IMF, its Management and Executive Board, or IMF policy and should not be reported as representing the official views of the OECD or of its member countries.