MACROECONOMIC CONSEQUENCES OF FOREIGN EXCHANGE FUTURES

Ferry Syarifuddin ()

No WP/14/2020, Working Papers from Bank Indonesia

Abstract: This paper provides two empirical investigations concerning the macroeconomics of foreign exchange (FX) futures market. We first examine the macroeconomic consequences of FX futures market activities for selected emerging market economies that adopt inflation targeting framework (ITF). This paper then conducts comparative study investigating the effect of futures-based FX intervention on the exchange rate dynamics and exchange rate pass-through effect for the case ofBrazil and India. By utilizing the Bayesian Panel VAR, we find initial intention of market squeezing. However, it occurs only in small magnitudes and for short periods and, therefore, the FX futures rate, spot exchange rate, inflation rate, and economic growth would not fluctuate abnormally. For the second investigation, we utilize Autoregressive Distributed Lag model and show that the futures-based FX interventions in Brazil are effective, while it is not the case for India. These findings suggest that specific economic institutional aspects, which leads to the FX futures market deepening and robust financial-economic regulatory structures, are important inmitigating market manipulation and promoting an effective futures-based FX intervention.

Keywords: foreign exchange futures market; futures-based FX intervention; exchange rate; pass-through. (search for similar items in EconPapers)
JEL-codes: E44 E52 E58 G23 G28 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2020
New Economics Papers: this item is included in nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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