IDEAS home Printed from https://ideas.repec.org/p/bis/biswps/94.html
   My bibliography  Save this paper

Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy

Author

Listed:
  • Ingo Fender

Abstract

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.

Suggested Citation

  • Ingo Fender, 2000. "Corporate hedging: the impact of financial derivatives on the broad credit channel of monetary policy," BIS Working Papers 94, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:94
    as

    Download full text from publisher

    File URL: http://www.bis.org/publ/work94.pdf
    File Function: Full PDF document
    Download Restriction: no
    File URL: http://www.bis.org/publ/work94.htm
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ramey, Valerie, 1993. "How important is the credit channel in the transmission of monetary policy?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 1-45, December.
    2. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 309-340.
    3. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    4. Frederic S. Mishkin, 1996. "The Channels of Monetary Transmission: Lessons for Monetary Policy," NBER Working Papers 5464, National Bureau of Economic Research, Inc.
    5. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    6. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    7. Tufano, Peter, 1996. "Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
    8. Nikolaus A. Siegfried, 2000. "Monetary Transmission Mechanisms in Euroland," Quantitative Macroeconomics Working Papers 20003, Hamburg University, Department of Economics.
    9. 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.
    10. Jürgen Von Hagen & Ingo Fender, 1998. "Central Bank Policy in a More Perfect Financial System," Open Economies Review, Springer, vol. 9(1), pages 493-532, January.
    11. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    12. Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
    13. Christina D. Romer & David Romer, 1993. "Credit channel or credit actions? an interpretation of the postwar transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 71-149.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Birgül Cambazoğlu & Hacer Simay Karaalp, 2013. "The External Finance Premium and the Financial Accelerator: The Case of Turkey," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 6(1), pages 103-121, April.
    2. Andreas Röthig & Willi Semmler & Peter Flaschel, 2009. "Corporate Currency Hedging and Currency Crises," Chapters, in: Andreas Pyka & Uwe Cantner & Alfred Greiner & Thomas Kuhn (ed.), Recent Advances in Neo-Schumpeterian Economics, chapter 7, Edward Elgar Publishing.
    3. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.
    4. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, October.
    5. Marvin Barth & Eli Remolona & Philip Wooldridge, 2002. "Changes in market functioning and central bank policy: an overview of the issues," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 1-24, Bank for International Settlements.
    6. 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.
    7. Jan Marc Berk, 2002. "Banca centrale e innovazione finanziaria. Una rassegna della letteratura recente," Moneta e Credito, Economia civile, vol. 55(220), pages 345-385.
    8. Ingo Fender, 2000. "The impact of corporate risk management on monetary policy transmission: some empirical evidence," BIS Working Papers 95, Bank for International Settlements.
    9. Andreas Pyka & Uwe Cantner & Alfred Greiner & Thomas Kuhn (ed.), 2009. "Recent Advances in Neo-Schumpeterian Economics," Books, Edward Elgar Publishing, number 12982.
    10. Moguillansky, Graciela, 2003. "Corporate risk management and exchange rate volatility in Latin America," Series Históricas 7800, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    11. Chiara Oldani, 2006. "money demand and futures," ISAE Working Papers 69, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
    12. Elisa Yamazaki Tanabe & José Carlos Ramírez Sánchez, 2010. "Evaluación del impacto del mercado de derivados en los canales de transmisión de la política monetaria en México: Metodologías VAR y M-GARCH," Revista de Administración, Finanzas y Economía (Journal of Management, Finance and Economics), Tecnológico de Monterrey, Campus Ciudad de México, vol. 4(2), pages 47-78.
    13. Esteban Gómez & Diego Vásquez & Camilo Zea, 2005. "Derivative Markets' Impact On Colombian Monetary Policy," Borradores de Economia 2277, Banco de la Republica.
    14. Graciela Moguillansky, 2002. "Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America," WIDER Working Paper Series DP2002-30, World Institute for Development Economic Research (UNU-WIDER).
    15. Philip Lowe & Miguel A. Segoviano, 2002. "Internal ratings, the business cycle and capital requirements: some evidence from an emerging market economy," BIS Working Papers 117, Bank for International Settlements.
    16. Segoviano, Miguel A. & Lowe, Philip, 2002. "Internal ratings, the business cycle and capital requirements: some evidence from an emerging market economy," LSE Research Online Documents on Economics 24948, London School of Economics and Political Science, LSE Library.
    17. Berk, Jan Marc, 2001. "New economy, old central banks? Monetary transmission in a new economic environment," Serie Research Memoranda 0032, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    18. Chiara Oldani, 2005. "An Overview of the Literature about Derivatives," Macroeconomics 0504004, University Library of Munich, Germany.
    19. Jan Marc Berk, 2002. "New Economy, Old Central Banks?," Tinbergen Institute Discussion Papers 02-087/2, Tinbergen Institute, revised 01 Aug 2002.
    20. Jan Marc Berk, 2002. "Central banking and financial innovation. A survey of the modern literature," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 55(222), pages 263-297.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95, October –.
    2. Smant, David / D.J.C., 2002. "Bank credit in the transmission of monetary policy: A critical review of the issues and evidence," MPRA Paper 19816, University Library of Munich, Germany.
    3. Ingo Fender, 2000. "The impact of corporate risk management on monetary policy transmission: some empirical evidence," BIS Working Papers 95, Bank for International Settlements.
    4. Gabriel A. Giménez Roche, 2016. "Entrepreneurial ignition of the business cycle: The corporate finance of malinvestment," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 29(3), pages 253-276, September.
    5. Kashyap, Anil K. & Stein, Jeremy C., 1995. "The impact of monetary policy on bank balance sheets," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 151-195, June.
    6. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, October.
    7. Paul Mizen & Cihan Yalcin, 2006. "Monetary Policy, Corporate Financial Composition and Real Activity," CESifo Economic Studies, CESifo Group, vol. 52(1), pages 177-213, March.
    8. Saibal Ghosh & Rudra Sensarma, 2004. "Does Monetary Policy Matter For Corporate Governance? Firm-Level Evidence From India," Advances in Financial Economics, in: Corporate Governance, pages 327-353, Emerald Group Publishing Limited.
    9. Leo De Haan & Elmer Sterken, 2006. "The impact of monetary policy on the financing behaviour of firms in the Euro area and the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 12(5), pages 401-420.
    10. Chirinko, Robert S., 2002. "Corporate Taxation, Capital Formation,and the Substitution Elasticity Between Labor and Capital," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(2), pages 339-355, June.
    11. Jean-Bernard Chatelain, 2003. "Structural modelling of financial constraints on investment: where do we stand?," Chapters, in: Paul Butzen & Catherine Fuss (ed.), Firms’ Investment and Finance Decisions, chapter 2, pages 40-58, Edward Elgar Publishing.
    12. Alfred V. Guender, 1998. "Is There a Bank‐Lending Channel of Monetary Policy in New Zealand?," The Economic Record, The Economic Society of Australia, vol. 74(226), pages 243-265, September.
    13. Mateja Gabrijelčič & Uroš Herman & Andreja Lenarčič, 2016. "Firm Performance and (Foreign) Debt Financing before and during the Crisis: Evidence from Firm-Level Data," Working Papers 15, European Stability Mechanism.
    14. Rizov, Marian, 2008. "Corporate capital structure and how soft budget constraints may affect it," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 22(4), pages 648-684.
    15. Igan, Deniz & Kabundi, Alain & De Simone, Francisco Nadal & Tamirisa, Natalia, 2017. "Monetary policy and balance sheets," Journal of Policy Modeling, Elsevier, vol. 39(1), pages 169-184.
    16. Jones, John B, 2003. "The Dynamic Effects of Firm-Level Borrowing Constraints," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 743-762, October.
    17. Chmielewski, Tomasz, 2005. "Bank risks, risk preferences and lending," MPRA Paper 5131, University Library of Munich, Germany, revised 15 Jan 2006.
    18. Ruby P. Kishan & Timothy P. Opiela, 2012. "Monetary Policy, Bank Lending, and the Risk‐Pricing Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(4), pages 573-602, June.
    19. Pratap, Sangeeta, 2003. "Do adjustment costs explain investment-cash flow insensitivity?," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 1993-2006, September.
    20. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bis:biswps:94. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin Fessler (email available below). General contact details of provider: https://edirc.repec.org/data/bisssch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.