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

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  • Xiaoqing Zhou

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.

Suggested Citation

  • Xiaoqing Zhou, 2022. "Financial Technology and the Transmission of Monetary Policy: The Role of Social Networks," Working Papers 2203, Federal Reserve Bank of Dallas, revised 14 Feb 2023.
    • Handle: RePEc:fip:feddwp:93889
    DOI: 10.24149/wp2203r1
    Note: Previously circulated under the title, "FinTech Lending, Social Networks and the Transmission of Monetary Policy."
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    More about this item

    Keywords

    FinTech; network effects; monetary policy; mortgage; consumption; refinancing;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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