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Central Banks Use of Derivatives and Other Contingent Liabilities; Analytical Issues and Policy Implications

Author

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  • Liliana B Schumacher
  • Mario I. Bléjer

Abstract

Whereas some central bank derivatives and other contingent liabilities arise from anomalous circumstances, there are a number of positive reasons that explain their popularity. After analyzing the rationale for these operations, we stress that most of these operations, being off-balance sheet, increase the risk and reduce the transparency of central bank accounts. This in turn makes more difficult the assessment of the financial position of the monetary authority and, by implication, of the macroeconomic conditions of the country. To deal with this issue, we suggest a comprehensive portfolio approach that values, in an economic sense, all assets and liabilities of the central bank.

Suggested Citation

  • Liliana B Schumacher & Mario I. Bléjer, 2000. "Central Banks Use of Derivatives and Other Contingent Liabilities; Analytical Issues and Policy Implications," IMF Working Papers 00/66, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:00/66
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    Cited by:

    1. Milan Nedeljkovic & Christian Saborowski, 2019. "The Relative Effectiveness of Spot and Derivatives‐Based Intervention," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(6), pages 1455-1490, September.
    2. Andrea Schaechter, 2001. "Implementation of Monetary Policy and the Central Bank's Balance Sheet," IMF Working Papers 01/149, International Monetary Fund.
    3. Dale F. Gray & Robert C. Merton & Zvi Bodie, 2006. "A New Framework for Analyzing and Managing Macrofinancial Risks of an Economy," NBER Working Papers 12637, National Bureau of Economic Research, Inc.
    4. Suh, Sangwon & Zapatero, Fernando, 2008. "A class of quadratic options for exchange rate stabilization," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3478-3501, November.

    More about this item

    Keywords

    Central banks; central bank; contingent liabilities; foreign exchange; bank assets; deposit insurance;

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