QE and the Bank Lending Channel in the United Kingdom

41 Pages Posted: 13 Oct 2015 Last revised: 14 Oct 2015

See all articles by Nicholas Butt

Nicholas Butt

Bank of England

Rohan Churm

Bank of England - Monetary Analysis

Michael McMahon

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Arpad Morotz

Bank of England

Jochen F. Schanz

Bank for International Settlements (BIS)

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2015

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 'flight' 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.

Keywords: Monetary policy, Bank lending channel, Quantitative Easing

JEL Classification: E51, E52, G20

Suggested Citation

Butt, Nicholas and Churm, Rohan and McMahon, Michael and Morotz, Arpad and Schanz, Jochen F., QE and the Bank Lending Channel in the United Kingdom (October 1, 2015). CAMA Working Paper No. 38/2015, Available at SSRN: https://ssrn.com/abstract=2673293 or http://dx.doi.org/10.2139/ssrn.2673293

Nicholas Butt

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Rohan Churm

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Michael McMahon (Contact Author)

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, OX1 3UQ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Arpad Morotz

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Jochen F. Schanz

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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