The Nuanced Role of Government Credit in Monetary Policy Transmission

Volume/Issue: Volume 2026 Issue 004

Publication date: January 2026

ISBN: 9798229035699

$20.00

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Banks and Banking , Money and Monetary Policy , Monetary policy , government banks , government direct credit , earmarked credit , SME , emerging market , Brazil , Loans , Credit , Collateral , Bank credit , Central bank policy rate

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Summary

We investigate the role of government credit in monetary policy transmission, using detailed credit registry data from Brazil. We find that government direct credit can effectively support small and medium-sized enterprises (SMEs) in a tight monetary policy environment, aligning with developmental objectives. But it comes at the cost of diminishing the overall effectiveness of monetary policy transmission. We also uncover complexities introduced by government-subsidized lending, where the impact of monetary policy transmission is influenced by factors such as credit market segments, lending relationships, and prevailing monetary policy conditions. These insights provide valuable guidance for policymakers on the transmission of monetary policy and the trade-offs involved in government credit programs.