Endogenous Monetary Policy Shifts and the Term Structure: Evidence from Japanese Government Bond Yields

35 Pages Posted: 26 Feb 2013 Last revised: 20 Oct 2017

See all articles by Junko Koeda

Junko Koeda

Ministry of Finance, Japan; Waseda University - School of Political Science and Economics

Date Written: December 18, 2012

Abstract

I construct a no-arbitrage term structure model with endogenous regime shifts and apply it to Japanese government bond (JGB) yields. This application subjects the short-term interest rate to monetary regime shifts, such as a zero interest rate policy (ZIRP) and normal regimes, which depend on macroeconomic variables. The estimated results show that under a ZIRP, the deflationary effect on bond yields increases on the longer end of yield curves; on the other hand, the effect of output gaps on raising bond yields weakens for all maturities.

Keywords: Zero interest rate policy, Endogenous regime shifts, Term structure of interest rates, Financial markets and the macroeconomy

JEL Classification: C13, C32, E43, E44, E52

Suggested Citation

Koeda, Junko, Endogenous Monetary Policy Shifts and the Term Structure: Evidence from Japanese Government Bond Yields (December 18, 2012). Available at SSRN: https://ssrn.com/abstract=2224416 or http://dx.doi.org/10.2139/ssrn.2224416

Junko Koeda (Contact Author)

Ministry of Finance, Japan ( email )

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Tokyo, 100-8940
Japan
1008940 (Fax)

Waseda University - School of Political Science and Economics ( email )

1-6-1 Nishi-Waseda
Shinjuku-ku, Tokyo 169-8050, Tokyo 169-8050
Japan

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