skip to Main Content

Bank of England finds QE did not increase bank lending: who would have thought

I read an August 2020 Bank of England Staff Working Paper (No.883) – Does quantitative easing boost bank lending to the real economy or cause other bank asset reallocation? The case of the UK – recently, which investigates whether the large bond-buying program of the Bank stimulates bank lending. They find that there was no stimulus to lending. Which would only be a surprise if one thought that mainstream monetary economics had anything useful to say. Modern Monetary Theory (MMT) economists were not at all surprised by this finding.The reality is that the lack of bank lending during the GFC had nothing to do with a liquidity shortfall within the banking sector. It had all to do with a lack of credit-worthy borrowers – which should tell you that bank reserves do not constrain bank lending. The fact that mainstream institutions such as the Bank of England are now publishing this sort of research, which undermines the mainstream theory is the interesting fact.

Read More
Back To Top