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Macroeconomic Consequences Of Foreign Exchange Futures

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  • Ferry Syarifuddin

Abstract

This paper provides two empirical investigations concerning the macroeconomics of foreign exchange (FX) futures market. We first examine the macroeconomic consequences of FX futures market activities for selected emerging market economies that adopt inflation targeting framework (ITF). This paper then conducts comparative study investigating the effect of futures-based FX intervention on the exchange rate dynamics and exchange rate pass-through effect for the case ofBrazil and India. By utilizing the Bayesian Panel VAR, we find initial intention of market squeezing. However, it occurs only in small magnitudes and for short periods and, therefore, the FX futures rate, spot exchange rate, inflation rate, and economic growth would not fluctuate abnormally. For the second investigation, we utilize Autoregressive Distributed Lag model and show that the futures-based FX interventions in Brazil are effective, while it is not the case for India. These findings suggest that specific economic institutional aspects, which leads to the FX futures market deepening and robust financial-economic regulatory structures, are important inmitigating market manipulation and promoting an effective futures-based FX intervention.

Suggested Citation

  • Ferry Syarifuddin, 2020. "Macroeconomic Consequences Of Foreign Exchange Futures," Working Papers WP/14/2020, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp142020
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    More about this item

    Keywords

    foreign exchange futures market; futures-based FX intervention; exchange rate; pass-through.;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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