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.
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- von Hagen, Jürgen & Fender, Ingo, 1998.
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"Is there a broad credit channel for monetary policy?,"
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- Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
- 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.
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