A Search Monetary Model with Uncertainty in Production and Futures Hedging
Date Issued
2012
Date
2012
Author(s)
Chuang, Chiao-Yin
Abstract
Futures contracts are widely used to hedge against risk caused by uncertainty in production when people decide on their production and trading strategies. By analyzing this phenomenon via a search monetary model with production shocks and a futures market, we illustrate that uncertainty in production is a crucial force behind agents''optimal choices when sellers produce in advance. Monetary policy has no impact on sellers'' production decisions when the economy su ers production shocks without a futures market. However, if agents can take positions in the futures market to hedge, monetary policy and the uncertainty in production influence production and trading in the spot market through the futures market because the use of futures contracts acting as insurance can reduce trading frictions and help agents share risk. Hence, welfare is improved in our model.
Subjects
futures contracts
monetary policy
search model
uncertainty in production
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
index.html
Size
23.49 KB
Format
HTML
Checksum
(MD5):83cfc040191740dd8f238e47c605d9c8