Monetary Policies Versus Regulatory Policies: Management of Peer to Peer Market Interest Rates

23 Pages Posted: 7 May 2020

Date Written: January–February 2020

Abstract

This paper studies how monetary and regulatory policies manage peer to peer (P2P) interest rates. Based on selected representative monetary and regulatory policies, this paper finds that easy monetary policies reduce the demand for online loans, thus reducing the market's interest rates. Monetary policies may increase the supply of online loans through rational expectation channels or reduce the demand for online loans through bank risk‐taking channels. Normative market‐based regulatory policy enables the P2P market to return to rationality, eliminates high‐risk investors and borrowers, and subsequently reduces market interest rates. Risk disposal‐based regulatory policy reduces market supply to some extent, resulting in a small increase in interest rates. Both easy monetary policies and regulatory policies have a great impact on the normal platforms. The interest rate of high‐risk platforms is less affected by the relevant policies, which is evidence that such platforms do not behave in accordance with the financial rules in general. Monetary policies mainly affect platforms with interest rates in a relatively normal range, while regulatory policies mainly focus on platforms with abnormal interest rates.

Keywords: interest rate, monetary policy, P2P market, regulatory policy

JEL Classification: G18, G28, G38

Suggested Citation

Li, Cangshu, Monetary Policies Versus Regulatory Policies: Management of Peer to Peer Market Interest Rates (January–February 2020). China & World Economy, Vol. 28, Issue 1, pp. 41-63, 2020, Available at SSRN: https://ssrn.com/abstract=3594717 or http://dx.doi.org/10.1111/cwe.12311

Cangshu Li (Contact Author)

Peking University ( email )

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