Technological Innovation and the Bank Lending Channel of Monetary Policy Transmission

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.

09. December 2021

Authors Iftekhar Hasan Xiang Li Tuomas Takalo

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Professor Xiang Li, PhD
Professor Xiang Li, PhD

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