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Derivatives activity and monetary policy

Author

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  • Christian Upper

Abstract

Trading in futures and options on short-term interest rates has grown rapidly since the turn of the millennium. This feature provides some econometric evidence on the relationship between turnover in this market and changes in policy rates, both actual and expected. The volume of trading in exchange-traded money market derivatives appears to respond mainly to changes in expectations of future interest rates, which is in line with evidence suggesting that monetary policy has become more transparent and predictable relative to the 1980s and early 1990s. Increased uncertainty about future central bank actions is also associated with higher turnover.

Suggested Citation

  • Christian Upper, 2006. "Derivatives activity and monetary policy," BIS Quarterly Review, Bank for International Settlements, September.
  • Handle: RePEc:bis:bisqtr:0609h
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    References listed on IDEAS

    as
    1. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 201-212, April.
    2. Shalen, Catherine T, 1993. "Volume, Volatility, and the Dispersion of Beliefs," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 405-434.
    3. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias in Macroeconomic Forecasts," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 293-318.
    4. Harris, Milton & Raviv, Artur, 1993. "Differences of Opinion Make a Horse Race," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 473-506.
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    Citations

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    Cited by:

    1. Silva-Correa, María de los Ángeles & Martínez-Marca, José Luís & Venegas-Martínez, Francisco, 2016. "Impacto del mercado de derivados en la política monetaria: un modelo de volatilidad estocástica
      [Impact of the Derivatives Market on Monetary Policy: A Stochastic Volatility Model]
      ," MPRA Paper 75705, University Library of Munich, Germany.
    2. Lawrence Kreicher & Robert N McCauley & Philip Wooldridge, 2014. "Benchmark tipping in the global bond market," BIS Working Papers 466, Bank for International Settlements.
    3. L. Arturo Bernal Ponce & Humberto Valencia Herrera, 2010. "Relación entre inflación y volatilidad de derivados financieros: el caso de México," Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics), Tecnológico de Monterrey, Campus Ciudad de México, vol. 4(1), pages 18-28.
    4. 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, vol. 26(2), pages 187-216.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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