Working Paper Revision

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.

Keywords: FinTech; network effects; monetary policy; mortgage; consumption; refinancing;

JEL Classification: E21; E44; E52; G21; G23;

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Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2023-02-14

Number: 2203

Note: Previously circulated under the title, "FinTech Lending, Social Networks and the Transmission of Monetary Policy."

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