What is ‘Macroeconomic Swap’
A type of derivative designed to help companies whose revenues are closely correlated with business cycles to reduce their business-cycle risk. In a macroeconomic swap, also called a macro swap, a variable stream of payments based on a macroeconomic indicator is exchanged for a fixed stream of payments. The exchange occurs between an end user and a macro swap dealer.
Explaining ‘Macroeconomic Swap’
Macroeconomic swaps were introduced to the market in the early 1990s. Types of indicators that may be used include, but are not limited to, the Consumer Confidence Index, the Wholesale Price Index, inflation rates, unemployment rates, gross national product and gross domestic product. In most types of swaps, the underlying asset can be traded, but this is not true for macroeconomic swaps.
Further Reading
- Macroeconomic uncertainty and credit default swap spreads – www.tandfonline.com [PDF]
- Sargent‐Wallace meets Krugman‐Flood‐Garber, or: why sovereign debt swaps do not avert macroeconomic crises – academic.oup.com [PDF]
- Variance swaps, non-normality and macroeconomic and financial risks – www.sciencedirect.com [PDF]
- Determinants of sovereign credit default swap spreads for piigs-a macroeconomic approach – lup.lub.lu.se [PDF]
- Linking the interest rate swap markets to the macroeconomic risk: the UK and US evidence – www.sciencedirect.com [PDF]
- Examination of the Macroeconomic Variables affecting Credit Default Swaps – www.kspjournals.org [PDF]
- Optimal investment and financing with macroeconomic risk and loan guarantees – papers.ssrn.com [PDF]
- Business cycles and the impact of macroeconomic surprises on interest rate swap spreads: Australian evidence – www.emerald.com [PDF]
- Exploring the relationship between macroeconomic indicators and sovereign credit default swap in Pakistan – www.emerald.com [PDF]
- The basic macroeconomics of debt swaps – www.jstor.org [PDF]
