E-Money and Monetary Policy Transmission

46 Pages Posted: 4 Apr 2024

See all articles by Zixuan Huang

Zixuan Huang

Johns Hopkins University

Amina Lahreche

International Monetary Fund (IMF)

Mika Saito

International Monetary Fund (IMF)

Ursula Wiriadinata

International Monetary Fund (IMF)

Abstract

E-money development has important yet theoretically ambiguous consequences for monetary policy transmission, because nonbank deposit-taking e-money issuers (EMIs) (e.g., mobile network operators) can either complement or substitute banks. Case studies of e-money regulations point to complementarity of EMIs with banks, implying that the development of e-money could deepen financial intermediation and strengthen monetary policy transmission. The issue is further explored with panel data, on both monthly (covering 21 countries) and annual (covering 47 countries) frequencies, over 2001 to 2019. We use a two-way fixed effect estimator to estimate the causal effects of e-money development on monetary policy transmission. We find that e-money development has accompanied stronger monetary policy transmission (measured by the responsiveness of interest rates to the policy rate), growth in bank deposits and credit, and efficiency gains in financial intermediation (measured by the lending-to-deposit rate spread). Evidence is more pronounced in countries where e-money development takes off in a context of limited financial inclusion. This paper highlights the potential benefits of e-money development in strengthening monetary policy transmission, especially in countries with limited financial inclusion.

Keywords: Monetary policy transmission, banks, nonbank financial institutions, e-money, panel data

JEL Classification: E52, E43, G21, G23

Suggested Citation

Huang, Zixuan and Lahreche, Amina and Saito, Mika and Wiriadinata, Ursula, E-Money and Monetary Policy Transmission. IMF Working Paper No. 2024/069, Available at SSRN: https://ssrn.com/abstract=4782817 or http://dx.doi.org/10.5089/9798400271410.001

Zixuan Huang (Contact Author)

Johns Hopkins University ( email )

Baltimore, MD 20036-1984
United States

Amina Lahreche

International Monetary Fund (IMF) ( email )

Mika Saito

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ursula Wiriadinata

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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