How Does Internet Finance Influence the Interest Rate? Evidence from Chinese Financial Markets

Changqing Luo,Mengzhen Li,Siyuan Fan,Pin Peng

doi:10.20897/djfm/89590

Changqing Luo, Mengzhen Li + Show 2 more

Open Access

https://doi.org/10.20897/djfm/89590

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Abstract

It is gradually accepted that the Internet finance has increased the accessibility of financial market, and caused an important impact on the financial market. Considering the quick development of the Internet finance in China, we propose theoretical hypotheses to explain the influencing path of Internet finance on market interest rate. Then by using the data from May 2013 to November 2016, we apply UCINET diagram and vector autoregression model and variance decomposition methods to verify the theoretical hypotheses. The empirical results show the Internet finance lead to the change of market interest rate mainly through reference point effect of P2P interest rate. Although the Internet finance affects the social monetization and exchange rate, this impact cannot be passed to interest rate through the medium variables of social monetization and exchange rate.

Highlights

With the acceleration of the reform of interest rate marketization, the People’s Bank of China (PBC) gradually relaxed the control of interest rate and established the market-oriented interest rate formation mechanism
The position of the SBR and the Peer-to-Peer is closest to the link, and the Peer-to-Peer refers to the interest rate of the Internet finance, while SBR refers to the interest rate level of the banking institution
The UCINET diagram shows that the trading volume significantly changes the P2P interest rate which has a direct impact on the monetary market interest rate, the path: VOL→P2P→SBR is significant

Summary

Introduction

With the acceleration of the reform of interest rate marketization, the People’s Bank of China (PBC) gradually relaxed the control of interest rate and established the market-oriented interest rate formation mechanism. The influencing path is developed as (H1): H1: The Internet finance can increase the velocity of money circulation, and a faster the money flow rate can lead to a lower the market interest rate. The hypothesis (H2) is as follow: H2: The Internet finance can increase of social monetization level and cause the decline in market interest rates.

Results

Conclusion