Scarcity and Spotlight Effects on Term Structure: Quantitative Easing in Japan
44 Pages Posted: 4 Jun 2017
Date Written: November 17, 2017
We investigate the determinants of the term structures of bond yield and market liquidity in the context of the Quantitative Easing (QE) programs implemented by the Bank of Japan. Between 2011 and 2016, we find that Japanese government bonds (JGBs) show an improvement in liquidity through the spotlight effect but also experience a deterioration in liquidity through the scarcity effect. As for the yield, both the spotlight and scarcity effects work in the same direction (i.e., they raise bond prices). Overall, the prices of JGBs rise by reflecting only the strong demand from the QE, despite the deterioration in liquidity.
Keywords: Sovereign bonds, quantitative easing, market liquidity, scarcity, spotlight
JEL Classification: C54; E43; E52; E58; G12; G14
Suggested Citation: Suggested Citation