Financial Market Functioning and Monetary Policy: Japan fs Experience
This paper reviews the financial market functioning under the zero interest rate policy (ZIRP) and the subsequent quantitative monetary easing policy (QMEP) conducted by the Bank of Japan (BOJ). First, the estimation results of the Japanese government bond yield curve using the Black-Gorovoi-Linetsky (BGL) model show that (1) the shadow interest rate has been negative since the late 1990s, turned upward in 2003, and has been on an uptrend since then, and (2) the first-hitting time until the negative shadow interest rate hits zero again under the risk-neutral probability is estimated to be about three months as of the end of February 2006. Second, under the ZIRP and QMEP, the risk premiums for Japanese banks have almost disappeared in short-term money markets such as the market for negotiable certificates of deposit, while they have remained in the credit default swap market and the stock market. This result supports the view that market participants have positively perceived the BOJ fs ample liquidity provisions in containing the near- term defaults of banks caused by the liquidity shortage.
Volume (Year): 24 (2006)
Issue (Month): S1 (December)
|Contact details of provider:|| Postal: 2-1-1 Nihonbashi, Hongoku-cho, Chuo-ku, Tokyo 103|
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben S. Bernanke & Vincent Reinhart & Brian P. Sack, 2004. "Monetary policy alternatives at the zero bound: an empirical assessment," Finance and Economics Discussion Series 2004-48, Board of Governors of the Federal Reserve System (U.S.).
- Duffee, Gregory R, 1999.
"Estimating the Price of Default Risk,"
Review of Financial Studies,
Society for Financial Studies, vol. 12(1), pages 197-226.
- Gregory R. Duffee, 1996. "Estimating the price of default risk," Finance and Economics Discussion Series 96-29, Board of Governors of the Federal Reserve System (U.S.).
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-1376, December.
- McCulloch, J Huston, 1971. "Measuring the Term Structure of Interest Rates," The Journal of Business, University of Chicago Press, vol. 44(1), pages 19-31, January.
- Tom Doan, "undated". "RATS program to estimate term structure with cubic splines," Statistical Software Components RTZ00019, Boston College Department of Economics.
- John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Theory Of Valuation, chapter 5, pages 129-164 World Scientific Publishing Co. Pte. Ltd..
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- Bikbov, Ruslan & Chernov, Mikhail, 2010. "No-arbitrage macroeconomic determinants of the yield curve," Journal of Econometrics, Elsevier, vol. 159(1), pages 166-182, November.
- Ruslan Bikbov & Mikhail Chernov, 2010. "No-arbitrage macroeconomic determinants of the yield curve," Post-Print hal-00732517, HAL.
- Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2006. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
- Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," CIRJE F-Series CIRJE-F-339, CIRJE, Faculty of Economics, University of Tokyo.
- Baba, Naohiko & Nakashima, Motoharu & Shigemi, Yosuke & Ueda, Kazuo, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," MPRA Paper 816, University Library of Munich, Germany.
- Naohiko Baba & Motoharu Nakashima & Yousuke Shigemi & Kazuo Ueda, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," CIRJE F-Series CIRJE-F-374, CIRJE, Faculty of Economics, University of Tokyo.
- Ito, Takatoshi & Harada, Kimie, 2004. "Credit Derivatives Premium as a New Japan Premium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 965-968, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:24:y:december:i:s1:p:39-71. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kinken)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.