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The Dynamics of Japanese Government Bonds' Nominal Yields

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  • Tanweer Akram
  • Huiqing Li

Abstract

This paper employs a Keynesian perspective to explain why Japanese government bonds' (JGBs) nominal yields have been low for more than two decades. It deploys several vector error correction (VEC) models to estimate long-term government bond yields. It shows that the low short-term interest rate, induced by the Bank of Japan's (BoJ) accommodative monetary policy, is mainly responsible for keeping long-term JGBs' nominal yields exceptionally low for a protracted period. The results also demonstrate that higher government debt and deficit ratios do not exert upward pressure on JGBs' nominal yields. These findings are relevant to ongoing policy debates in Japan and other advanced countries about government bond yields, fiscal sustainability, fiscal policy, functional finance, monetary policy, and financial stability.

Suggested Citation

  • Tanweer Akram & Huiqing Li, 2018. "The Dynamics of Japanese Government Bonds' Nominal Yields," Economics Working Paper Archive wp_906, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_906
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    References listed on IDEAS

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    6. Manmohan S. Kumar & Emanuele Baldacci, 2010. "Fiscal Deficits, Public Debt, and Sovereign Bond Yields," IMF Working Papers 10/184, International Monetary Fund.
    7. Gary Hansen & Selahattin Imrohoroglu, 2016. "Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 201-224, July.
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    More about this item

    Keywords

    Japanese Government Bonds; Long-Term Interest Rate; Nominal Bond Yields; Monetary Policy; Bank of Japan; John Maynard Keynes;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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