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Implications Of Platform Finance On Monetary Policy Transmission

Author

Listed:
  • CHIN-YOONG WONG

    (Department of Economics, Universiti Tunku Abdul Rahman, Jalan Universiti, Bandar Barat, 31900 Kampar, Perak, Malaysia)

  • YOKE-KEE ENG

    (Department of Economics, Universiti Tunku Abdul Rahman, Jalan Universiti, Bandar Barat, 31900 Kampar, Perak, Malaysia)

Abstract

The emergence of a decentralized peer-to-peer platform that matches lending and borrowing without collateral requirements has called the bank lending and balance-sheet channels for monetary transmission into question. Via a standard New Keynesian macroeconomic model expanded with two-sided platform and group identity, we put forward a novel platform density channel of monetary transmission, which could overshadow the conventional channels. An increase in policy rate, for instance, would instigate a shift toward platform borrowing. Increasing borrowers’ density attracts participation in platform deposits, which in turn further enhances borrowers’ benefit of joining the platform, making liquidity available at decreasing platform loan rates. Business investment and hence the inflation rate gets lifted despite monetary tightening. The implication of platform density channel diminishes, however, when platform borrowings complement bank borrowings, and pose nontrivial risk of default.

Suggested Citation

  • Chin-Yoong Wong & Yoke-Kee Eng, 2023. "Implications Of Platform Finance On Monetary Policy Transmission," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(06), pages 2081-2103, December.
    • Handle: RePEc:wsi:serxxx:v:68:y:2023:i:06:n:s0217590820500253
    DOI: 10.1142/S0217590820500253
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    More about this item

    Keywords

    P2P lending; digital finance; two-sided platform; group identity; monetary transmission;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • 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

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