Corporate Hedging: The Impact of Financial Derivatives on the Broad Credit Channel of Monetary Policy

Abstract

Fax: +41 61 / 280 91 00 and +41 61 / 280 81 00This publication is available on the BIS website (www.bis.org). 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. © Bank for

The Impact of Corporate Risk Management on Monetary Policy Transmission: Some Empirical Evidence

“…Assuming that corporate cash flows are subject to interest rate risk, firms can now use interest rate futures and options to deal with their exposures to interest rates. A firm, being subject to a financial accelerator, might therefore find it profitable to engage in risk management strategies aiming to adjust the interest rate sensitivity of corporate cash flows (Fender, 2000). This, in turn, implies that the dynamic development of derivatives markets is likely to have a potentially important impact on those channels of monetary policy transmission that rest on the existence of asymmetric information.…”

“…Berkman et al (1997),Joseph and Hewins (1997) andBodnar and Gebhardt (1998).4SeeFender (2000) for a model of corporate hedging under the conditions of a broad credit channel.…”

Derivative markets impact on colombian monetary policy

“…This phenomenon is known as the credit channel of monetary policy 4 . Fender (2000a), Bernanke, Gertler and Gilchrist (1998) and Bernanke and Gertler (1995) find that a tight monetary policy affects corporate cash flows, lessening the ability of the firm to find credit. This latter effect is known in the literature as the balance sheet effect, wealth effect or financial accelerator.…”

“…More recently, Froot et Al. (1993) and Fender (2000a), show that if information asymmetries increase the cost of external finance vis a vis internal financing, incentives are created for firms to manage corporate risk. Businesses that depend upon internal funds need their cash flows to fluctuate the least possible and hence, are interested in using mechanisms that guarantee such stability.…”

The role of the Central Bank as a participant in the financial derivatives market

“…/www.nbs.rs/internet/latinica/33/33_3/publikacije/brosura_finansijski_der ivati.pdf).Rezultat jeste smanjenje otvorenih deviznih pozicija u bilansima, a istovremeno sa tim, ukupni neto stok svopova se smanjuje (a na osnovu pogleda bankarskog sektora za ostvarenje likvidnost u forinti). On je novembra 2014. godine bio blizu nule(Fender, 2015). Preduzeća na domaćem tržištu ne koriste dovoljno unakrsni kamatni svop.…”