Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy
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.
|Date of creation:||Nov 2000|
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- Nikolaus A. Siegfried, 2000. "Monetary Transmission Mechanisms in Euroland," Quantitative Macroeconomics Working Papers 20003, Hamburg University, Department of Economics.
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B 03-1998, University of Bonn, ZEI - Center for European Integration Studies.
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- Daniel L. Thornton, 1994. "Financial innovation, deregulation and the "credit view" of monetary policy," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-49.
- Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
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