Derivatives Market Development And Monetary Policy Transmission

In the past 30 years,the derivatives market has developed into one of the most important forces in China’s financial market.From the perspective of transaction value,it has far exceeded the Shanghai and Shenzhen stock markets and interbank bond market cash notes.At the same time,the market structure and product types of China’s derivatives cannot fully meet the market demand,and there is still a large space for development.What influence does the development of derivatives market have on the transmission of monetary policy and what is the mechanism of action?The discussion of these questions has important theoretical and practical significance for effectively dredging the "obstruction" of monetary policy and improving the transmission efficiency of monetary policy.This paper studies the core issue of how the development of derivatives affects the transmission of monetary policy,demonstrates the mechanism of the effect of derivatives on the transmission of monetary policy theoretically,and empirically tests relevant issues with the data of enterprises,industries and macro levels.The study found that:Firstly,the development of derivatives market can affect the transmission of monetary policy through risk allocation mechanism,information gain mechanism and capital competition mechanism.Specifically,the derivatives market can improve the utility of participants through risk reallocation,reduce the financing cost in risk reallocation,and effectively smooth the micro and macro economic fluctuations.Derivatives market plays an important role in improving information content,information transmission,promoting capital competition and improving the speed of capital circulation.The theoretical model analysis shows that the development of the derivatives market promotes the transmission of the monetary policy interest rate channel,but inhibits the transmission of the monetary policy credit channel.In addition,the analysis shows that the total effect of the development of derivatives market strengthens the transmission of monetary policy through the asset price channel.Secondly,China’s derivatives market has been moving forward through twists and turns in the past 30 years.From the perspective of development index,the overall development trend has been fluctuating,which can be divided into stable development period,fluctuating growth period and accelerated development period.With January1998 as the base period(base point is 100),the development index of China’s derivatives market at the end of 2022 is 10,058.5.Derivatives market developments have a significant impact on aggregate output and inflation.The development of derivatives market has a significant impact on the transmission channel of monetary policy interest rate.The test shows that the development of derivatives market magnifies the marginal impact of corporate loan interest rate on corporate investment level,but cannot magnify the marginal impact of monetary policy benchmark interest rate on corporate investment level.The improvement of the development level of derivatives market makes the transmission path of "money market benchmark interest rate--corporate loan interest rate--corporate investment" more effective,and the transmission efficiency of short-term interest rate to long-term interest rate is higher.Thirdly,the development of derivatives market has a significant impact on the credit transmission channel of monetary policy.The test shows that the total coefficient of monetary policy on the change of bank credit supply is always positive,but when the development level of derivatives market increases,the corresponding degree of influence will decrease,that is,the development of derivatives market weakens the influence of monetary policy on bank credit supply to some extent.Tests using firm-level data show that when derivatives markets are more developed,firms’ external financing decreases.When the development level of derivative market is lower than a certain threshold,the overall influence of monetary policy on corporate external financing is positive,but the degree of such positive influence gradually weakens with the increase of the development level of derivative market.When the development level of derivative market exceeds this threshold,the overall influence of monetary policy on corporate external financing is negative,and the degree of such negative influence gradually increases with the development level of derivative market.Fourthly,the development of derivatives market has a significant impact on the transmission channel of monetary policy asset prices.The test shows that the development of derivatives market has no significant impact on the return rate of the stock market,but it can have a significant positive impact on the return rate of individual stocks.Meanwhile,the development of derivatives market weakens the positive impact of monetary policy on the whole market and the return rate of individual stocks in Shanghai and Shenzhen to some extent.Even after the derivative market development index exceeds a certain threshold,its influence direction changes,but it cannot affect the return rate of individual stocks on GEM.The development of derivatives markets has significantly amplified the impact of monetary policy on property prices.The development of derivatives market can have a significant positive impact on commodity prices.With the improvement of the development level of derivatives market,the positive impact of monetary policy on commodity prices will decrease somewhat,but the overall impact coefficient is always positive.Moreover,developments in the financial derivatives market have had a weak impact on commodity prices.On the basis of the research,three policy suggestions are put forward.First,the spillover effect of the development of the derivative market on the transmission of monetary policy is studied deeply,so that the formulation and implementation of monetary policy can adapt to the new development of the derivative market;Second,accelerate the construction of over-the-counter financial derivatives market to enhance the anti-risk ability of China’s financial system;Third,improve the financial derivatives market supervision mechanism,timely and effectively control and defuse risks.