Financial Technology and the Transmission of Monetary Policy: The Role of Social Networks

Abstract

Financial technology-based (FinTech) lending is expected to ease U.S. mortgage market frictions that have weakened the transmission of monetary policy to households. This paper establishes that social networks play a key role in consumers' adoption of FinTech lending, which amplifies the effects of a monetary stimulus. I provide causal estimates of the network effect on FinTech adoption using county-level data. To quantify the role of FinTech lending and network spillovers in the transmission of monetary policy shocks, I build a heterogeneous-agent model with social learning. The model shows that the consumption response to a monetary stimulus is 13% higher in the presence of FinTech lending and network spillovers, and that about half of this improvement is accounted for by network spillovers.

Financial Technologies and the Effectiveness of Monetary Policy Transmission

“…On the other hand, FinTech could enhance transmission through several channels. For instance, by easing frictions that have weakened the transmission, such as the failure of households to optimally refinance mortgages and the capacity constraints of mortgage lenders, FinTech is seen as an amplifier of monetary policy in the mortgage market (Zhou 2022). Moreover, the interest rate channel can be stronger for FinTech lenders compared to traditional banks since the latter try to build long-term relationships with borrowers, dampening the effect of interest rate changes (Bolton et al 2016), while the direct credit supply from the former is more responsive to borrowers' change in business conditions (Gambacorta et al 2023, Buchak et al 2021).…”

BigTech Credit and Monetary Policy Transmission: Micro-Level Evidence from China

“…De Fiore et al ( 2022) study BigTech's response to monetary policy based on cross-country annual data and model the role of BigTech as facilitating matching between sellers and buyers. Zhou (2022) emphasizes the role of social network in helping FinTech enhance the transmission of monetary policy to the mortgage market.…”