Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222737 
Year of Publication: 
2019
Series/Report no.: 
ADBI Working Paper Series No. 970
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
The emergence of a decentralized peer-to-peer platform that matches lending and borrowing without collateral requirements has called the bank lending and balance-sheet channels for monetary transmission into question. Via a standard New Keynesian macroeconomic model expanded with two-sided platform and group identity, we put forward a novel platform density channel of monetary transmission, which could overshadow the conventional channels. An increase in policy rate, for instance, would instigate a shift toward platform borrowing. Increasing borrowers' density attracts participation in platform deposits, which in turn further enhances borrowers' benefit of joining the platform, making liquidity available at decreasing platform loan rates. Business investment and hence the inflation rate gets lifted despite monetary tightening. The implication of a platform density channel diminishes, however, when platform borrowings pose nontrivial risk of default.
Subjects: 
P2P lending
digital finance
two-sided platform
group identity
monetary transmission
JEL: 
E43
E44
E52
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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