QE and the Bank Lending Channel in the United Kingdom
41 Pages Posted: 13 Oct 2015 Last revised: 14 Oct 2015
Date Written: October 1, 2015
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: Suggested Citation