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QE and the Bank Lending Channel in the United Kingdom

Author

Listed:
  • Butt, Nick

    (Bank of England)

  • Churm, Rohan

    (Bank of England)

  • McMahon, Michael

    (University of Warwick, CEPR, CAGE (Warwick), CfM (LSE), and CAMA (ANU))

  • Morotz, Arpad

    (Bank of England)

  • Schanz, Jochen

    (Bank for International Settlements)

Abstract

We test whether quantitative easing (QE), in addition to boosting aggregate demand and inflation via portfolio rebalancing channels, operated through a bank lending channel (BLC) in the UK. Using Bank of England data together with an instrumental variables approach, we find no evidence of a traditional BLC associated with QE. We show, in a simple framework, that the traditional BLC is diminished if the bank receives `flighty' deposits (deposits that are likely to quickly leave the bank). We show that QE gave rise to such flighty deposits which may explain why we find no evidence of a BLC.

Suggested Citation

  • Butt, Nick & Churm, Rohan & McMahon, Michael & Morotz, Arpad & Schanz, Jochen, 2015. "QE and the Bank Lending Channel in the United Kingdom," CAGE Online Working Paper Series 244, Competitive Advantage in the Global Economy (CAGE).
  • Handle: RePEc:cge:wacage:244
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    More about this item

    Keywords

    Monetary policy; Bank lending channel; Quantitative Easing JEL Classification: E51; E52; G20;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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