Digital Payments and Monetary Policy Transmission

Pauline Liang, Matheus Sampaio and Sergey Sarkisyan
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Pauline Liang: Stanford U
Matheus Sampaio: Northwestern U
Sergey Sarkisyan: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

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 the deposit channel.

JEL-codes: E42 E52 G21 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2024-14

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