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 F. McMahon

University of Warwick - Faculty of Social Studies; London School of Economics & Political Science (LSE)

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 F. 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 F. McMahon (Contact Author)

University of Warwick - Faculty of Social Studies ( email )

United Kingdom

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
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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