Presenter: Cristina Manea
Affiliation: Deutsche Bundesbank, Research Centre
Paper: Big Techs and the Credit Channel of Monetary Policy
Date: May 16, 2022
Time: 13:00 GMT
Abstract: We study how the entry of large technology firms such as Amazon, Alibaba or Facebook (“Big Techs”) into finance may affect the transmission of monetary policy. Our empirical analysis suggests that big tech credit and bank credit react very differently to monetary policy. We rationalize these findings through the lens of a novel extension of the New Keynesian framework where Big Techs facilitate matching in the supply chain and extend working capital loans, thus adding an additional source of finance relative to bank loans. The Big Tech firm reinforces credit repayment with the threat of exclusion from its ecosystem, while bank credit is secured against collateral. According to our model: (i) big tech credit reacts less to monetary policy due to a more muted response of firms’ profits as opposed to physical collateral; (ii) as matching efficiency on Big Tech’s commerce platform rises, the expansion in firms’ profits leads to a higher share of big tech credit, and hence, to weaker responses of credit and output to monetary policy.
Coauthors: Fiorella De Fiore (BIS) and Leonardo Gambacorta (BIS).