Interest rate swaps and the transmission mechanism of monetary policy: A quantile connectedness approach

Ioannis Chatziantoniou; David Gabauer; Alexis Stenfors

doi:10.1016/j.econlet.2021.109891

Interest rate swaps and the transmission mechanism of monetary policy: A quantile connectedness approach

Ioannis Chatziantoniou, David Gabauer, Alexis Stenfors

Centre for Innovative and Sustainable Finance

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Abstract

We investigate 1-year interest rate swaps on USD, EUR, JPY and GBP between 2005 and 2020 utilising a quantile connectedness model. This approach allows for a nuanced investigation of connectedness and adds to understanding the monetary policy transmission mechanism within a highly integrated international financial system. Substantial interest rate changes (in either direction) matter for connectedness in financial markets. The results also indicate which currency drives developments depending on the direction of the change in interest rates. The full implementation and replication code - based on R, is available at: https://github.com/GabauerDavid/ConnectednessApproach.

Original language	English
Article number	109891
Number of pages	4
Journal	Economics Letters
Volume	204
Early online date	5 May 2021
DOIs	https://doi.org/10.1016/j.econlet.2021.109891
Publication status	Published - 1 Jul 2021

Keywords

Interest rate swaps
monetary policy transmission mechanism
Quantile Vector Autorergression

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10.1016/j.econlet.2021.109891

IRS and the Transmission Mechanism_Working Paper Version (1)Accepted author manuscript (Post-print), 426 KBLicence: CC BY-NC-ND

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abstract = "We investigate 1-year interest rate swaps on USD, EUR, JPY and GBP between 2005 and 2020 utilising a quantile connectedness model. This approach allows for a nuanced investigation of connectedness and adds to understanding the monetary policy transmission mechanism within a highly integrated international financial system. Substantial interest rate changes (in either direction) matter for connectedness in financial markets. The results also indicate which currency drives developments depending on the direction of the change in interest rates. The full implementation and replication code - based on R, is available at: https://github.com/GabauerDavid/ConnectednessApproach.",

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Interest rate swaps and the transmission mechanism of monetary policy: A quantile connectedness approach

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Keywords

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