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Endogenous monetary policy shifts and the term structure: Evidence from Japanese government bond yields

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  • Koeda, Junko

Abstract

I construct a no-arbitrage term structure model with endogenous regime shifts and apply it to Japanese government bond (JGB) yields. This model subjects the short-term interest rate to monetary regime shifts, specifically a zero interest rate policy (ZIRP) and normal regimes, which depend on macroeconomic variables. The estimates show that under the ZIRP regime, the effect of deflation (inflation) on lowering (raising) bond yields amplifies on the long end of yield curves, compared with a case with positive interest rates under the normal regime. On the other hand, output gaps’ ability to raise bond yields weakens for all maturities.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 29 (2013)
Issue (Month): C ()
Pages: 170-188

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Handle: RePEc:eee:jjieco:v:29:y:2013:i:c:p:170-188

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Web page: http://www.elsevier.com/locate/inca/622903

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Keywords: Zero interest rate policy; Forward guidance; Term Structure of Interest Rates; Financial markets and the macroeconomy; Estimation;

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Cited by:
  1. Jens H.E. Christensen, 2013. "A regime-switching model of the yield curve at the zero bound," Working Paper Series, Federal Reserve Bank of San Francisco 2013-34, Federal Reserve Bank of San Francisco.

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