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Monetary Policy and the Term Structure of Interest Rates in Japan

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Author Info
R. Anton Braun (Faculty of Economics, University of Tokyo)
Etsuro Shioji (Yokohama National University)
Abstract

This paper uses Japanese data to investigate the relationship between monetary policy and the yield curve. We compare and contrast the role of monetary policy under two perspectives. Under the liquidity effect maintained hypothesis monetary policy is an ineffective tool in altering long-term bond yields and doesnft account for much of the long-term variation in bonds of any maturity. Under the sticky price maintained hypothesis, however, monetary policy has large and persistent effects on the yield curve producing large hump-shaped responses in yields of all maturities. Moreover, under this hypothesis shocks to monetary policy and other macroeconomic variables are important sources of variation in long-term yields jointly accounting for 50% of the long-run variance of the 5-year yield.

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Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-252.

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Length: 41 pages
Date of creation: Dec 2003
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Handle: RePEc:tky:fseres:2003cf252

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  2. S. Rao Aiyagari & R. Anton Braun & Zvi Eckstein, 1998. "Transaction Services, Inflation, and Welfare," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1274-1301, December. [Downloadable!] (restricted)
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  4. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds," NBER Working Papers 4699, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ang, Andrew & Piazzesi, Monika, 2003. "A no-arbitrage vector autoregression of term structure dynamics with macroeconomic and latent variables," Journal of Monetary Economics, Elsevier, vol. 50(4), pages 745-787, May. [Downloadable!] (restricted)
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  8. Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May. [Downloadable!] (restricted)
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  14. Lawrence J. Christiano & Martin Eichenbaum & Charles Evans, 1994. "The effects of monetary policy shocks: evidence from the Flow of Funds," Working Paper Series, Macroeconomic Issues 94-2, Federal Reserve Bank of Chicago.
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  18. Etsuro Shioji, 1997. "Spanish Monetary Policy: A Structural VAR Analysis," Economics Working Papers 215, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  20. Ben S. Bernanke & Ilian Mihov, 1998. "Measuring Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 869-902, August. [Downloadable!] (restricted)
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  22. Evans, Charles L. & Marshall, David A., 1998. "Monetary policy and the term structure of nominal interest rates: Evidence and theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 49(1), pages 53-111, December. [Downloadable!] (restricted)
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  23. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  24. Miyao, Ryuzo, 2002. "The Effects of Monetary Policy in Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 376-92, May.
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