Excess liquidity can weaken policy transmission – BoE paper
“Novel dataset” sheds light on possible unintended consequences of crisis-fighting measures
Central banks increasingly use generous liquidity provision as a crisis-fighting tool, but this may hamper the transmission of lower rates to the economy, new research by the Bank of England (BoE) finds.
Sam Miller and Boromeus Wanengkirtyo construct a “novel dataset” by combining three “highly granular” datasets on bank liquidity positions, loan-level mortgages and transaction-level quantitative easing auctions. They use the exogenous variation in liquidity brought on by the use of QE to try
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