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

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  • Chatziantoniou, Ioannis
  • Gabauer, David
  • Stenfors, Alexis
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.

Suggested Citation

  • Chatziantoniou, Ioannis & Gabauer, David & Stenfors, Alexis, 2021. "Interest rate swaps and the transmission mechanism of monetary policy: A quantile connectedness approach," Economics Letters, Elsevier, vol. 204(C).
    • Handle: RePEc:eee:ecolet:v:204:y:2021:i:c:s0165176521001683
    DOI: 10.1016/j.econlet.2021.109891
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    References listed on IDEAS

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    1. Chatziantoniou, Ioannis & Gabauer, David, 2021. "EMU risk-synchronisation and financial fragility through the prism of dynamic connectedness," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 1-14.
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    More about this item

    Keywords

    Interest rate swaps; Monetary policy transmission mechanism; Quantile vector autoregression;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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