Digital Payments and Monetary Policy Transmission

66 Pages Posted: 22 Aug 2024 Last revised: 25 Nov 2024

See all articles by Pauline Liang

Pauline Liang

Stanford Graduate School of Business

Matheus Sampaio

Northwestern University

Sergey Sarkisyan

Ohio State University (OSU) - Department of Finance

Date Written: August 21, 2024

Abstract

We examine the impact of digital payments on the transmission of monetary policy by leveraging administrative data on Brazil’s Pix, a digital payment system. We find that Pix adoption diminished banks’ market power, making them more responsive to changes in policy rates. We estimate a dynamic banking model in which digital payments amplify deposit demand elasticity. Our counterfactual results reveal that digital payments intensify the monetary transmission by reducing banks’ market power – banks respond more to policy rate changes, and loans decrease more after monetary policy hikes. We find that digital payments impact monetary transmission primarily through deposit market power.

Keywords: Digital payments, monetary policy transmission, banking, pix

JEL Classification: E42, G21, E52

Suggested Citation

Liang, Pauline and Sampaio, Matheus and Sarkisyan, Sergey, Digital Payments and Monetary Policy Transmission
(August 21, 2024). Fisher College of Business WP No. 2024-03-014 and Charles A. Dice Center WP No. 2024-14, Available at SSRN: https://ssrn.com/abstract=4933059 or http://dx.doi.org/10.2139/ssrn.4933059

Pauline Liang

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305
United States

Matheus Sampaio

Northwestern University ( email )

Sergey Sarkisyan (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

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