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Interest Rate Smoothing and Game-Varying Premium: Another Look at Debt Management in Japan

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  • Takeya, Y.

Abstract

We argue a source of time-varying premium (TVTP) in Japanese government bond market, and show that it is interest rate smoothing that causes empirical failures of expectation theory of term structure of interest rates. We estimate a regime switching ARCH model where an interest rate smoothing regime can be identified. Based on a model of time-inconsistency by Missale and Blanchard (1994), we further focus on a role of debt maturity in TVTP, which is an alternative to an ARCH process.

Suggested Citation

  • Takeya, Y., 1999. "Interest Rate Smoothing and Game-Varying Premium: Another Look at Debt Management in Japan," Papers 800, Yale - Economic Growth Center.
  • Handle: RePEc:fth:yalegr:800
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    More about this item

    Keywords

    INTEREST RATE ; DEBT ; ECONOMIC MODELS;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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