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Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies

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  • Syarifuddin, Ferry

Abstract

Although the discussion on foreign exchange (FX) futures market has drawn significant concern in the economic literature, this paper is the first attempt to address how the FX futures market impacts macroeconomic conditions with the inflation targeting regime. We use a dataset comprising of four emerging market countries with inflation targeting regime and active FX futures market, namely Brazil, Mexico, Turkey, and India, from January 2015 to December 2018. By utilizing Bayesian Panel Vector Autoregressions, we find that the FX futures rate shocks significantly affect the macroeconomic environment and monetary policy due to the strong relationship between the spot and futures market. We also find the initial indication of the market squeezing mechanism in the FX futures market. However, it occurs only in a small magnitude and a short period and thus, the spot exchange rate, inflation rate, and economic growth would not fluctuate abnormally. Our findings are robust for the various robustness checks.

Suggested Citation

  • Syarifuddin, Ferry, 2020. "Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies," MPRA Paper 104810, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:104810
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    Cited by:

    1. Hao-Chang Yang & Ferry Syarifuddin & Chun-Ping Chang & Hai-Jie Wang, 2022. "The Impact of Exchange Rate Futures Fluctuations on Macroeconomy: Evidence from Ten Trading Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(8), pages 2300-2313, June.

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    More about this item

    Keywords

    Foreign Exchange Futures Market; Inflation Targeting Framework; Macroeconomy; Emerging Economies;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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