Interest Rate Smoothing and Game-Varying Premium: Another Look at Debt Management in Japan
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.
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|Date of creation:||1999|
|Date of revision:|
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