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QE and the Bank Lending Channel in the United Kingdom

Author

Listed:
  • Nick Butt
  • Rohan Churm
  • Michael McMahon
  • Arpad Morotz
  • Jochen Schanz

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

  • Nick Butt & Rohan Churm & Michael McMahon & Arpad Morotz & Jochen Schanz, 2015. "QE and the Bank Lending Channel in the United Kingdom," CAMA Working Papers 2015-38, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2015-38
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2015-10/38_2015_butt_churm_mcmahon_morotz_schanz.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary policy; Bank lending channel; Quantitative Easing;

    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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