OTC Derivatives and Global Economic Activity: An Empirical Analysis

Gordon Bodnar, Jonathan Fortun Vargas and Jaime Marquez
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Jaime Marquez: Johns Hopkins School of Advanced International Studies, The Johns Hopkins University, Washington, DC 20036, USA

JRFM, 2017, vol. 10, issue 2, 1-23

Abstract: That the global market for derivatives has expanded beyond recognition is well known. What is not know is how this market interacts with economic activity. We provide the first empirical characterization of interdependencies between OECD economic activity and the global OTC derivatives market. To this end, we apply a vector-error correction model to OTC derivatives disaggregated across instruments and counterparties. The results indicate that with one exception, the heterogeneity of OTC contracts is too pronounced to be reliably summarized by our measures of economic activity. The one exception is interest-rate derivatives held by Other Financial Institutions.

Keywords: over the counter derivatives; economic activity; cointegration (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2017
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