Derivatives Effect on Monetary Policy Transmission

Author/Editor:

Coenraad Vrolijk

Publication Date:

September 1, 1997

Electronic Access:

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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.

Series:

Working Paper No. 97/121

Subject:

English

Publication Date:

September 1, 1997

ISBN/ISSN:

9781451854343/1018-5941

Stock No:

WPIEA1211997

Format:

Paper

Pages:

56

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