What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy?

60 Pages Posted: 20 Jun 2019 Last revised: 7 Oct 2020

See all articles by Yiping Huang

Yiping Huang

Peking University

Xiang Li

Halle Institute for Economic Research

Chu Wang

Peking University - National School of Development

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2020

Abstract

This paper uses loan application-level data from a peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we provide evidence of monetary policy's impact on a nonbank financial institution's risk-taking. We find that the search-for-yield is the main driving force of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and greater riskiness of credit allocation. However, these changes do not necessarily relate to a larger loan amount on average.

Keywords: Monetary Policy, Risk-taking, Nonbank Financial Institution, Peer-to-Peer Lending, Search-for-yield, Risk-shifting

JEL Classification: E52, G23

Suggested Citation

Huang, Yiping and Li, Xiang and Wang, Chu, What Does Peer-to-Peer Lending Evidence Say About the Risk-taking Channel of Monetary Policy? (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3401533 or http://dx.doi.org/10.2139/ssrn.3401533

Yiping Huang

Peking University ( email )

Beijing, 100871
China

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Chu Wang

Peking University - National School of Development ( email )

Beijing, 100871
China

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