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Market Liquidity and Systemic Risk in Government Bond Markets: A Network Analysis and Agent-Based Model Approach

Author

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  • Toshiyuki Sakiyama

    (Deputy Director, Economic and Financial Studies Division, Institute for Monetary and Economic Studies (currently Financial Markets Department), Bank of Japan (E-mail: toshiyuki.sakiyama@boj.or.jp))

  • Tetsuya Yamada

    (Director, Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: tetsuya.yamada@boj.or.jp))

Abstract

Recently, market liquidity in government bond markets has been attracting attention by market participants and central bankers since interest rate spikes have become frequent under unconventional monetary easing. We analyze network structures in the JGB (Japanese government bond) market using daily data from the BOJ-NET (the Bank of Japan Financial Network System). To our knowledge, this is the first network analysis on the government bond market. We studies how QQE (quantitative and qualitative monetary easing) has affected JGB market structure. We also conduct event studies for the spikes in interest rates (the shock after the introduction of QQE and the so-called VaR [Value at Risk] shock in 2003). In addition, we propose an agent-based model that accounts for the findings of the above event studies, and show that not only the capital adequacy of market participants but also the network structure are important for financial market stability.

Suggested Citation

  • Toshiyuki Sakiyama & Tetsuya Yamada, 2016. "Market Liquidity and Systemic Risk in Government Bond Markets: A Network Analysis and Agent-Based Model Approach," IMES Discussion Paper Series 16-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:16-e-13
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hattori, Takahiro, 2021. "Noise as a liquidity measure: Evidence from the JGB market," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    2. HORIKAWA Takumi & MATSUI Yujiro & GEMMA Yasufumi, 2021. "A Network Analysis of the JGB Repo Market," Bank of Japan Working Paper Series 21-E-14, Bank of Japan.
    3. repec:hal:spmain:info:hdl:2441/1j4v8sl4fc9a49ankmnhv6bb6a is not listed on IDEAS
    4. Takanobu Mizuta & Sadayuki Horie, 2019. "Mechanism by which active funds make market efficient investigated with agent-based model," Evolutionary and Institutional Economics Review, Springer, vol. 16(1), pages 43-63, June.
    5. Popoyan, Lilit & Napoletano, Mauro & Roventini, Andrea, 2020. "Winter is possibly not coming: Mitigating financial instability in an agent-based model with interbank market," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    6. Mr. Fei Han & Dulani Seneviratne, 2018. "Scarcity Effects of Quantitative Easing on Market Liquidity: Evidence from the Japanese Government Bond Market," IMF Working Papers 2018/096, International Monetary Fund.

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    More about this item

    Keywords

    Market Liquidity; Government bond markets; Quantitative and Qualitative Easing; Network analysis; Systemic risk; Agent-based model;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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