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

Abstract

This paper studies the role of social networks in the adoption of financial-technology (FinTech) lending in the U.S. mortgage market and its implications for the transmission of monetary policy to household consumption. While new technology improves the quality of financial services, social interactions drive more consumers to use these services, especially for mortgage refinancing, which amplifies the effect of monetary stimulus through the refinancing channel. Using county-level data, I show that social network spillovers have a large and persistent effect on FinTech adoption, especially among refinancing borrowers. To quantify the extent to which monetary-policy effects are altered by the presence of FinTech lending, I build a heterogeneous-agent model with social learning. Counterfactual analysis using the calibrated model shows that the presence of FinTech lending leads to a 13% increase in the consumption response to monetary stimulus, with more than half of this increase accounted for by the amplification through social network spillovers.

Keywords: FinTech, network effect, monetary policy, mortgage, consumption, refinancing

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