Working Paper: CEPR ID: DP10875
Authors: Nick Butt; Rohan Churm; Michael McMahon; Arpad Morotz; Jochen Schanz
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 '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.
Keywords: bank lending channel; monetary policy; quantitative easing
JEL Codes: E51; E52; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Flighty deposits diminish potential for robust BLC (F65) | Lending behavior (G21) |
| Other policies (SLS, FLS) influence lending behavior (G28) | Lending behavior (G21) |
| Changes in deposits from QE (E49) | Changes in lending (G21) |
| Increased deposits from QE (E49) | Increased lending (G21) |