Derivatives Effect on Monetary Policy Transmission
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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.
Series:
Working Paper No. 1997/121
Subject:
Asset prices Derivative markets Exchange rates Financial markets Financial regulation and supervision Foreign exchange Hedging National accounts Personal income Prices
English
Publication Date:
September 1, 1997
ISBN/ISSN:
9781451854343/1018-5941
Stock No:
WPIEA1211997
Pages:
56
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