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On the Relation between Money and Derivatives and its Application to the International Monetary Market

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  • Paolo Savona

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  • Aurelio Maccario

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Abstract

The paper deals with the problem of defining money in a system with derivatives. We conclude that derivatives have to be included in the definition of money, and support our conclusions with an econometric test on the New York Stock Exchange (NYSE) and Chicago Board of Trade indexes. We focus on the direct relationship between derivatives' supply and the interest rate, the analytical basis of speculative money demand introduced by Keynes and the foundation of the Fratianni-Savona model to single out the international monetary base. Consequently, monetary aggregates measured by international institutions, such as the Bank for International Settlements, underestimate the actual offshore market size. Derivatives are the primary instruments used by speculators. There is money, mainly in reserve currencies, that is not controlled and that may cause systemic instability (e.g., the recent Asian crisis). Copyright Kluwer Academic Publishers 1998

Suggested Citation

  • Paolo Savona & Aurelio Maccario, 1998. "On the Relation between Money and Derivatives and its Application to the International Monetary Market," Open Economies Review, Springer, vol. 9(1), pages 637-664, January.
  • Handle: RePEc:kap:openec:v:9:y:1998:i:1:p:637-664
    DOI: 10.1023/A:1008377123134
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    References listed on IDEAS

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    1. Barry Eichengreen, 1998. "Exchange Rate Stability and Financial Stability," Open Economies Review, Springer, vol. 9(1), pages 569-608, January.
    2. Michele Fratianni & Andreas Hauskrecht & Aurelio Maccario, 1998. "Dominant Currencies and the Future of the Euro," Open Economies Review, Springer, vol. 9(1), pages 467-492, January.
    3. Jürgen Von Hagen & Ingo Fender, 1998. "Central Bank Policy in a More Perfect Financial System," Open Economies Review, Springer, vol. 9(1), pages 493-532, January.
    4. Franklin R. Edwards & Frederic S. Mishkin, 1995. "The decline of traditional banking: implications for financial stability and regulatory policy," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 27-45.
    5. Forrest Capie, 1998. "Monetary Unions in Historical Perspective: What Future for the Euro in the International Financial System," Open Economies Review, Springer, vol. 9(1), pages 447-466, January.
    6. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
    7. Louis O. Scott, 1991. "The Information Content of Prices in Derivative Security Markets," IMF Working Papers 91/132, International Monetary Fund.
    8. Tomás J. T. Baliño & Charles Enoch & William E. Alexander, 1995. "The Adoption of Indirect Instruments of Monetary Policy," IMF Occasional Papers 126, International Monetary Fund.
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    Citations

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    Cited by:

    1. Michele Fratianni & Andreas Hauskrecht & Aurelio Maccario, 1998. "Dominant Currencies and the Future of the Euro," Open Economies Review, Springer, vol. 9(1), pages 467-492, January.
    2. Michele Fratianni & Francesco Marchionne, 2009. "The Role of Banks in the Subprime Financial Crisis," Mo.Fi.R. Working Papers 23, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    3. Michele Fratianni & Dominick Salvatore & Paolo Savona, 1998. "Ideas for the Future of the International Monetary System: Conclusions and Remarks," Open Economies Review, Springer, vol. 9(1), pages 689-700, January.
    4. Barry Eichengreen, 1998. "Exchange Rate Stability and Financial Stability," Open Economies Review, Springer, vol. 9(1), pages 569-608, January.
    5. Alberto Predieri, 1998. "Money Markets and Poliarchic Democratic States," Open Economies Review, Springer, vol. 9(1), pages 713-726, January.
    6. Jürgen Von Hagen & Ingo Fender, 1998. "Central Bank Policy in a More Perfect Financial System," Open Economies Review, Springer, vol. 9(1), pages 493-532, January.
    7. Esteban Gómez & Diego Vásquez & Camilo Zea, 2005. "Derivative Markets' Impact On Colombian Monetary Policy," BORRADORES DE ECONOMIA 002277, BANCO DE LA REPÚBLICA.
    8. Dominick Salvatore, 1998. "International Monetary and Financial Arrangements: Present and Future," Open Economies Review, Springer, vol. 9(1), pages 375-416, January.
    9. Alberto Predieri, 2000. "New Financial Architectures and Legal Infrastructures: Toward a Corrected and Compensated International Monetary System," Open Economies Review, Springer, vol. 11(1), pages 205-234, August.
    10. Chiara Oldani, 2005. "An Overview of the Literature about Derivatives," Macroeconomics 0504004, EconWPA.
    11. Dimitrios N.Koumparoulis, 2011. "Will human action by Ludwig von Mises help understand what causes the 2008 economic crisis?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 61(3-4), pages 26-47, July - De.
    12. Paolo Savona & Aurelio Maccario & Chiara Oldani, 2000. "On Monetary Analysis of Derivatives," Open Economies Review, Springer, vol. 11(1), pages 149-175, August.
    13. Becchetti, Leonardo & Ciampoli, Nicola, 2012. "What is new in the finance-growth nexus: OTC derivatives, bank assets and growth," AICCON Working Papers 110-2012, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    14. Kearney, Colm, 1999. "The Asian Financial Crisis," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI), vol. 1999(1-Februar), pages 29-55.

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