DP10875 QE and the Bank Lending Channel in the United Kingdom

Author(s):	Nicholas Butt, Rohan Churm, Michael McMahon, Arpad Morotz, Jochen Schanz
Publication Date:	October 2015
Keyword(s):	bank lending channel, monetary policy, Quantitative Easing
JEL(s):	E51, E52, G20
Programme Areas:	Monetary Economics and Fluctuations
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10875

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.