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Identifying the Effect of Bank of Japan's Liquidity Facilities: The Case of CP Operations During Financial Turmoil

Author

Listed:
  • Yasuo Hirose

    (Bank of Japan)

  • Shinsuke Ohyama

    (Bank of Japan)

Abstract

To what extent did the Bank of Japan's liquidity facilities for corporate financing reduce commercial paper (CP) issue-rates in Japan? To answer this question, we propose a simple structural model that illustrates the market for the CP operations and their effects on the CP primary market. Based on the structural model, we measure the effects of the CP operations as differences between the actual rates in the primary market and the counterfactual rates without the operations, and decompose the effects into three factors. We apply our model to identifying effects of CP operations from October 2008 to May 2009, including the period after the Bank of Japan introduced the outright purchase of CP and its special funds-supplying operation accepting CPs as collateral in addition to the CP repo operation. Our results suggest that the CP repo operation and the outright purchase of CP had remarkable effects intially, however, later their effects were subdued, and that effects of the special funds-supplying operation were substantial and persistent from January to April 2009.

Suggested Citation

  • Yasuo Hirose & Shinsuke Ohyama, 2009. "Identifying the Effect of Bank of Japan's Liquidity Facilities: The Case of CP Operations During Financial Turmoil," Bank of Japan Working Paper Series 09-E-7, Bank of Japan.
    • Handle: RePEc:boj:bojwps:09-e-7
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    References listed on IDEAS

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    1. Carpenter, Seth & Demiralp, Selva, 2006. "The Liquidity Effect in the Federal Funds Market: Evidence from Daily Open Market Operations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(4), pages 901-920, June.
    2. Eisenschmidt, Jens & Hirsch, Astrid & Linzert, Tobias, 2009. "Bidding behaviour in the ECB's main refinancing operations during the financial crisis," Working Paper Series 1052, European Central Bank.
    3. Judson, Ruth A. & Klee, Elizabeth, 2010. "Whither the liquidity effect: The impact of Federal Reserve open market operations in recent years," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 713-731, September.
    4. Yasuo Hirose & Shinsuke Ohyama & Ken Taniguchi, 2009. "Identifying the Effect of Bank of Japan's Liquidity Provision on the Year-End Premium: A Structural Approach," Bank of Japan Working Paper Series 09-E-6, Bank of Japan.
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    Cited by:

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    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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