WILL PEER-TO-PEER ONLINE LENDING AFFECT THE EFFECTIVENESS OF MONETARY POLICY?

Online lending is a product of digital transformation, which has had a profound impact on the traditional money market. This paper discusses the impact of peer-topeer (P2P) online lending on the effectiveness of monetary policy. Through the bootstrap sub-sample rolling-window Granger causality tests show that P2P has both positive and negative impacts on the money supply (M2). The positive impact of P2P on M2 indicates that online loans increase the amount of money supply. The negative impact of P2P on M2 shows that it may cut the money supply, thus weakening the monetary policy effectiveness. The general equilibrium model is inconsistent with these results, which underlines a positive effect from P2P to M2. In turn, the negative impact points out that the adjustment of monetary policy will hinder the development of P2P. The negative impact of M2 on P2P indicates that through the regulation of money supply, the online lending market can be correctly guided to prevent financial market from getting out of control. Through the supervision of online lending industry, we can accurately grasp the development of the internet financial industry and reduce its impact on monetary policy.