Derivatives Effect on Monetary Policy Transmission

September 1, 1997

Preview Citation

Format: Chicago

Coenraad Vrolijk. Derivatives Effect on Monetary Policy Transmission, (USA: International Monetary Fund, 1997) accessed September 27, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper examines changes in the monetary policy transmission mechanism in the presence of derivatives markets. The effect of adding derivatives markets is analyzed independently for each of the main channels of monetary policy transmission: interest rates, credit, and exchange rates. Theoretically, derivatives trading speeds up transmission to financial asset prices, but changes in the transmission to the real economy are ambiguous. Using the structural vector autoregression methodology, an empirical study of the United Kingdom is used to assess the impulse responses of output and inflation, controlling for the size of the U.K. derivative markets. No definitive empirical support for a change in the transmission process is found.

Subject: Asset prices, Derivative markets, Exchange rates, Financial markets, Financial regulation and supervision, Foreign exchange, Hedging, National accounts, Personal income, Prices

Keywords: Asset prices, Derivative exchange market, Derivative growth shock, Derivative markets, Derivative usage, Equivalent interest rate derivative figure, Exchange market intervention, Exchange rates, Global, Growth shock, Hedging, Income effect, Market size, Off-balance sheet derivative activity, Personal income, Sheet derivative activity, Substitution effect, Transmission mechanism, United Kingdom derivative, WP

Publication Details

Pages:

56
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1997/121
Stock No:

WPIEA1211997
ISBN:

9781451854343
ISSN:

1018-5941

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