Unconventional Monetary Policies and the Macroeconomy: The Impact of the United Kingdom's QE2 and Funding for Lending Scheme

Churm, Rohan; Joyce, Michael; Kapetanios, George; Theodoridis, Konstantinos

doi:10.2139/ssrn.2644312

“…The cost of funds borrowed directly from the facility was decreasing with the amount of the new FLS-eligible (i.e., household and PNFC sector) lending by the borrowing bank. This is likely to have contributed to a general decline in bank funding costs (see Churm et al, 2015). Moreover, the corresponding pass-through to interest rates should have had a direct negative impact on the probability of default and hence risk weights associated with UK bank loans, just like with QE.…”

Section: Why Capital Requirements Unconventional Monetary Policy Anmentioning

confidence: 99%

The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies

Forbes

¹

,

Reinhardt

²

,

Wieladek

³

2016

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Have bank regulatory policies and unconventional monetary policies -and any possible interactions -been a factor behind the recent 'deglobalisation' in cross-border bank lending? To test this hypothesis, we use bank-level data from the United Kingdom -a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the United Kingdom's Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on external lending. Quantitative easing may also have had an amplification effect, but these estimates are usually insignificant and smaller in magnitude. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the contraction globally. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

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“…Chung et al (2012) find slightly larger effects, and emphasize that QE prevented the U.S. economy from falling into deflation. Using simulation from a large Bayesian VAR-model,Churm et al (2015) conclude that the second round of purchases by the Bank of England increased GDP by between 0.5% and 0.8%, while inflation was affected by at most 0.6 percentage points.Using a similar methodology,Weale and Wieladek (2016) estimate that announcing purchases of 1% of GDP affects U.S. GDP by 0.58%, while the effects for the U.K. are only 0.25%. In a follow-up study,Wieladek and Pascual (2016) examine the real effects of the ECB's QE and conclude that in absence of the first round of QE, real GDP and core CPI in the euro area would have been 1.3%-points and 0.9%-points lower, respectively.…”

mentioning

confidence: 99%

Necessity as the Mother of Invention: Monetary Policy after the Crisis

Ehrmann¹,

Haan²,

Jansen³

2016

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu Terms of use: Documents in Working Paper SeriesNecessity as the mother of invention: monetary policy after the crisis Alan Blinder, Michael Ehrmann, Jakob de Haan, David-Jan JansenDisclaimer: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. No 2 / 2017MONETARY POLICY AFTER THE CRISIS Abstract:We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys-one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly-for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, we expect central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks' toolkits, as governors who gain experience with a particular tool are more likely to assess that tool positively.

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“…household and PNFC sector) lending by the borrowing bank. The greater availability of funds may also have led to a general decline in bank funding costs (see Churm et al 2015). Moreover, the corresponding pass-through to interest rates should have had a direct negative impact on the probability of default and hence risk weights associated with UK bank loans, just like with QE.…”

mentioning

confidence: 99%

The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies

Forbes

¹

,

Reinhardt

²

,

Wieladek

³

2017

Journal of Monetary Economics

View full text Add to dashboard Cite

Have bank regulatory policies and unconventional monetary policies -and any possible interactions -been a factor behind the recent 'deglobalisation' in cross-border bank lending? To test this hypothesis, we use bank-level data from the United Kingdom -a country at the heart of the global financial system. Our results suggest that increases in microprudential capital requirements tend to reduce international bank lending and some forms of unconventional monetary policy can amplify this effect. Specifically, the United Kingdom's Funding for Lending Scheme (FLS) significantly amplified the effects of increased capital requirements on external lending. Quantitative easing may also have had an amplification effect, but these estimates are usually insignificant and smaller in magnitude. We find that this interaction between microprudential regulations and the FLS can explain roughly 30% of the contraction in aggregate UK cross-border bank lending between mid-2012 and end-2013, corresponding to around 10% of the contraction globally. This suggests that unconventional monetary policy designed to support domestic lending can have the unintended consequence of reducing foreign lending.

show abstract

Unconventional Monetary Policies and the Macroeconomy: The Impact of the United Kingdom's QE2 and Funding for Lending Scheme

Cited by 22 publications

References 31 publications

The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies

The Spillovers, Interactions, and (Un)Intended Consequences of Monetary and Regulatory Policies

Necessity as the Mother of Invention: Monetary Policy after the Crisis

The spillovers, interactions, and (un)intended consequences of monetary and regulatory policies

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