Technological innovation and the bank lending channel of monetary policy transmission

Iftekhar Hasan, Xiang Li and Tuomas Takalo

No 9/2023, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: This paper studies whether and how banks' technological innovations affect the bank lending channel of monetary policy transmission. We first provide a theoretical model in which banks' technological innovation relaxes firms' earning-based borrowing constraints and thereby enlarges the response of banks' lending to monetary policy changes. To test the empirical implications, we construct a patent-based measurement of bank-level technological innovation, which can specify the nature of technology and tell whether it is related to the bank's lending business. We find that lending-related innovations significantly strengthen the transmission of the bank lending channel.

Keywords: Innovation; FinTech; Monetary Policy Transmission; Bank Lending Channel (search for similar items in EconPapers)
JEL-codes: E52 G21 G23 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon, nep-pay and nep-tid
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https://www.econstor.eu/bitstream/10419/280960/1/187711376X.pdf (application/pdf)

Related works:
Working Paper: Technological innovation and the bank lending channel of monetary policy transmission (2023)
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