The Research On The Impact Of Credit Derivatives On Monetary Policy Transmission Effect

In the 1990s, with the development of financial innovation and needs of risk management in commercial banks, as a financial derivatives, credit derivatives developed rapidly. However, in the end of 2007, burst of credit derivatives bubble deteriorated the U.S. subprime mortgage crisis. Then the deteriorated economic situation in U.S. rapidly spread worldwide. From the rapid expansion to the bubble burst, credit derivatives are considered as a major factor for economic financial crisis, which made people keep considerable vigilance of the product, and raised reconsider on these new products from the academic community .Before the negative effect of credit derivatives fully exposing, the scholars have proposed their views on its impact of monetary policy. In order to control the overheating economic growth, In the Greenspan era, United States entered up to 17 times of rate increasing cycle, such continued tight monetary policy restrain the further expansion of asset price bubbles at last. At the same time, people started thinking: what led to so long delay of the monetary policy? Do the credit derivatives affect monetary policy transmission mechanism? Financial turmoil caused by Burst of credit derivatives bubble immediately put the credit derivatives onto the focus of controversy.This study used the combination of qualitative and quantitative analysis, statistical and quantitative analysis methods to make an in-depth research for the effect of credit derivatives on monetary policy transmission. We prove the existence of impact of credit derivatives on the monetary transmission mechanism theoretically and empirically. By using analysis methods of Regression of cointegration, Granger causality test, Impulse response function and Variance decomposition as empirical studies, we found that the development of credit derivatives weaken the effectiveness and increased the time-delay uncertainty of monetary policy. Our central bank can draw our reference and inspiration from the development of credit derivatives. On the one hand, the central bank should strengthen the construction for supervision and transparency in the trading transactions in the credit derivatives market. Then make the product play a positive role but a negative role. On the other hand, the central bank should speed up the policy adjustment, pay close attention to the price of credit derivatives, use combined monetary policy tools to offset this effect, and strengthen the independence and effectiveness of monetary policy.