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Monetary Implications of Cross-Border Derivatives for Emerging Economies

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  • Armando Méndez Morales

Abstract

This paper surveys concepts, practices and analytical literature to assess benefits and risks for monetary stability of cross-border currency and interest rate derivative operations in calm and turbulent periods, with a view of extracting implications for emerging economies. Monetary authorities must prevent one-sided positions in the currency, favor asset substitutability, and incorporate the enriched information set provided by derivative-based transactions into monetary policy design. In some circumstances, the use of derivatives by monetary authorities may help fulfill this role. By contrast, surcharges to compensate for a downward impact of derivatives on the cost of capital appear neither advisable nor necessary.

Suggested Citation

  • Armando Méndez Morales, 2001. "Monetary Implications of Cross-Border Derivatives for Emerging Economies," IMF Working Papers 01/58, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:01/58
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    Cited by:

    1. Esteban Gómez & Diego Vásquez & Camilo Zea, 2005. "Derivative Markets' Impact On Colombian Monetary Policy," BORRADORES DE ECONOMIA 002277, BANCO DE LA REPÚBLICA.
    2. 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.
    3. Chiara Oldani, 2005. "An Overview of the Literature about Derivatives," Macroeconomics 0504004, EconWPA.
    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.

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