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Quantitative Easing and Residential Bank Lending: A Panel Data Study of Swedish Banks

Meresené, Karoun LU and Freij, Hugo LU (2024) NEKN01 20241
Department of Economics
Abstract (Swedish)
In response to a period of low inflation and near-zero interest rates, the Swedish central
bank initiated Quantitative Easing (QE) in 2015. While the impact of QE on bank lending
has been studied in the US and UK, its effects in Sweden remains under-researched. We
study the effects of QE on residential bank lending in Sweden through the liquidity, bank
lending and bank capital channels. Using a one-way fixed effects model, we interact QE
with measures of balance sheet strength of the six largest banks in Sweden. We observe
a positive relationship between QE and lending. The main results indicate the presence
of a bank capital channel, working in the opposite direction of previous findings. The
liquidity channel is only... (More)
In response to a period of low inflation and near-zero interest rates, the Swedish central
bank initiated Quantitative Easing (QE) in 2015. While the impact of QE on bank lending
has been studied in the US and UK, its effects in Sweden remains under-researched. We
study the effects of QE on residential bank lending in Sweden through the liquidity, bank
lending and bank capital channels. Using a one-way fixed effects model, we interact QE
with measures of balance sheet strength of the six largest banks in Sweden. We observe
a positive relationship between QE and lending. The main results indicate the presence
of a bank capital channel, working in the opposite direction of previous findings. The
liquidity channel is only active through covered bonds while the bank lending channel
shows no significant effect. To capture the unpredictable component of QE, we construct
a shock variable from a structural VAR model. The effect of the shock amplifies the
impact on residential lending, although the main results are not altered. However, the
evidence of the transmission channels are sensitive to cross-sectional dependency. We
also find that QE is an effective crisis-mitigating tool in terms of the credit supply of
banks during the Covid-19 pandemic. (Less)
Please use this url to cite or link to this publication:
author
Meresené, Karoun LU and Freij, Hugo LU
supervisor
organization
course
NEKN01 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
Quantitative Easing, Bank Lending, Swedish Banks, Liquidity Channel, Bank Lending Channel, Bank Capital Channel, Fixed effects, Structural VAR
language
English
id
9155730
date added to LUP
2024-10-01 13:07:18
date last changed
2024-10-01 13:07:18
@misc{9155730,
  abstract     = {{In response to a period of low inflation and near-zero interest rates, the Swedish central
 bank initiated Quantitative Easing (QE) in 2015. While the impact of QE on bank lending
 has been studied in the US and UK, its effects in Sweden remains under-researched. We
 study the effects of QE on residential bank lending in Sweden through the liquidity, bank
 lending and bank capital channels. Using a one-way fixed effects model, we interact QE
 with measures of balance sheet strength of the six largest banks in Sweden. We observe
 a positive relationship between QE and lending. The main results indicate the presence
 of a bank capital channel, working in the opposite direction of previous findings. The
 liquidity channel is only active through covered bonds while the bank lending channel
 shows no significant effect. To capture the unpredictable component of QE, we construct
 a shock variable from a structural VAR model. The effect of the shock amplifies the
 impact on residential lending, although the main results are not altered. However, the
 evidence of the transmission channels are sensitive to cross-sectional dependency. We
 also find that QE is an effective crisis-mitigating tool in terms of the credit supply of
 banks during the Covid-19 pandemic.}},
  author       = {{Meresené, Karoun and Freij, Hugo}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Quantitative Easing and Residential Bank Lending: A Panel Data Study of Swedish Banks}},
  year         = {{2024}},
}