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The role of leverage in quantitative easing decisions: Evidence from the UK

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  • Philippas, Dionisis
  • Papadamou, Stephanos
  • Tomuleasa, Iuliana

Abstract

The paper analyses the implications arising from the impulses and responses of the banking sector in the UK, through the banks’ portfolio balance sheet information, when determined by the quantitative easing implementation. In a panel vector autoregressive framework, we examine the effects of Bank of England's asset purchases on disaggregated leverage and bank profitability for different types of financial institutions, which reflect differences in the sequencing of the quantitative easing strategy. We find that the transmission channel of QE to the growth of economic activity depends on the degree of financial leverage, the holdings of securities and lending rates but with diverging magnitude for the different types of UK financial institutions.

Suggested Citation

  • Philippas, Dionisis & Papadamou, Stephanos & Tomuleasa, Iuliana, 2019. "The role of leverage in quantitative easing decisions: Evidence from the UK," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 308-324.
    • Handle: RePEc:eee:ecofin:v:47:y:2019:i:c:p:308-324
    DOI: 10.1016/j.najef.2018.04.014
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    Cited by:

    1. Dionisis Philippas & Catalin Dragomirescu-Gaina & Alexandros Leontitsis & Stephanos Papadamou, 2023. "Built-in challenges within the supervisory architecture of the Eurozone," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(1), pages 15-39, March.
    2. Stephanos Papadamou & Νikolaos A. Kyriazis & Panayiotis G. Tzeremes, 2020. "US non-linear causal effects on global equity indices in Normal times versus unconventional eras," International Economics and Economic Policy, Springer, vol. 17(2), pages 381-407, May.
    3. Kenourgios, Dimitrios & Umar, Zaghum & Lemonidi, Paraskevi, 2020. "On the effect of credit rating announcements on sovereign bonds: International evidence," International Economics, Elsevier, vol. 163(C), pages 58-71.
    4. Vijay Kumar & Sanjeev Acharya & Ly T. H. Ho, 2020. "Does Monetary Policy Influence the Profitability of Banks in New Zealand?," IJFS, MDPI, vol. 8(2), pages 1-17, June.
    5. Dimitris Kenourgios & Despoina Ntaikou, 2021. "ECB’s unconventional monetary policy and bank lending supply and performance in the euro area," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(2), pages 211-224, April.

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    More about this item

    Keywords

    Quantitative easing; Financial institutions; Leverage; Panel VAR;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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