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Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy

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  • Ingo Fender

Abstract

This complementary paper to Froot, Scharfstein, and Stein (1993) seeks to explore some of the corporate finance foundations of monetary economics. In particular, we investigate the impact of corporate risk management strategies on the monetary transmission mechanism. We employ a simple model of a financial accelerator (synonymously: a broad credit channel of monetary policy transmission) to argue that information asymmetries - which are at the heart of these models of the transmission mechanism - create incentives for corporate hedging programmes, that is, cash flow management. These policies, in turn, diminish the impact of monetary policy measures, which is reduced to the pure cost-of-capital effect.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 94.

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Length: 36 pages
Date of creation: Nov 2000
Date of revision:
Handle: RePEc:bis:biswps:94

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  1. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
  2. von Hagen, Jürgen & Fender, Ingo, 1998. "Central bank policy in a more perfect financial system," ZEI Working Papers, ZEI - Center for European Integration Studies, University of Bonn B 03-1998, ZEI - Center for European Integration Studies, University of Bonn.
  3. Ivo J.M. Arnold & Casper G. de Vries, 1999. "Endogenous Financial Structure and the Transmission of ECB Policy," Tinbergen Institute Discussion Papers, Tinbergen Institute 99-021/2, Tinbergen Institute.
  4. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
  5. Nikolaus A. Siegfried, 2000. "Monetary Transmission Mechanisms in Euroland," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20003, Hamburg University, Department of Economics.
  6. Christina D. Romer & David H. Romer, 1993. "Credit Channel or Credit Actions? An Interpretation of the Postwar Transmission Mechanism," NBER Working Papers 4485, National Bureau of Economic Research, Inc.
  7. Daniel L. Thornton, 1994. "Financial innovation, deregulation and the "credit view" of monetary policy," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jan, pages 31-49.
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Cited by:
  1. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," BNL Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
  2. Jan Marc Berk, 2002. "New Economy, Old Central Banks?," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-087/2, Tinbergen Institute, revised 01 Aug 2002.
  3. Esteban Gómez & Diego Vásquez & Camilo Zea, . "Derivative Markets' Impact on Colombian Monetary Policy," Borradores de Economia 334, Banco de la Republica de Colombia.
  4. Chiara Oldani, 2005. "An Overview of the Literature about Derivatives," Macroeconomics, EconWPA 0504004, EconWPA.
  5. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
  6. L. Arturo Bernal Ponce & Francisco Venegas Martínez, 2011. "Impacto de los productos derivados los objetivos de política monetaria: un modelo de equilibrio general," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 26(2), pages 187-216.
  7. Marvin J. Barth & Philip D. Wooldridge & Eli M Remolona, 2002. "Changes in market functioning and central bank policy: an overview of the issues," BIS Working Papers, Bank for International Settlements 120, Bank for International Settlements.
  8. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, Economia civile, vol. 55(220), pages 345-385.
  9. Ingo Fender, 2000. "The impact of corporate risk management on monetary policy transmission: some empirical evidence," BIS Working Papers, Bank for International Settlements 95, Bank for International Settlements.
  10. Moguillansky, Graciela, 2002. "Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  11. Röthig, Andreas & Semmler, Willi & Flaschel, Peter, 2005. "Corporate currency hedging and currency crises," Darmstadt Discussion Papers in Economics, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) 27194, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  12. Chiara Oldani, 2006. "money demand and futures," ISAE Working Papers, ISTAT - Italian National Institute of Statistics - (Rome, ITALY) 69, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).

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