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

Author

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  • Miss Liliana B Schumacher
  • Mr. 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

  • Miss Liliana B Schumacher & Mr. Mario I. Bléjer, 2000. "Central Banks Use of Derivatives and Other Contingent Liabilities: Analytical Issues and Policy Implications," IMF Working Papers 2000/066, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/066
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    Cited by:

    1. David Archer, 2005. "Foreign exchange market intervention: methods and tactics," BIS Papers chapters, in: Bank for International Settlements (ed.), Foreign exchange market intervention in emerging markets: motives, techniques and implications, volume 24, pages 40-55, Bank for International Settlements.
    2. 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.
    3. Christopher J. Neely, 2001. "The practice of central bank intervention: looking under the hood," Review, Federal Reserve Bank of St. Louis, vol. 83(May), pages 1-10.
    4. Ms. Andrea Schaechter, 2001. "Implementation of Monetary Policy and the Central Bank's Balance Sheet," IMF Working Papers 2001/149, International Monetary Fund.
    5. 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.
    6. 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.
    7. Gustavo Adler & Camilo Ernesto Tovar, 2014. "Foreign Exchange Interventions and their Impact on Exchange Rate Levels," Monetaria, Centro de Estudios Monetarios Latinoamericanos, CEMLA, vol. 0(1), pages 1-48, January-J.

    More about this item

    Keywords

    WP; central bank; value; market; forward contract;
    All these keywords.

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