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.