Financial and Capital Markets' Responses to Changes in the Central Bank's Target Interest Rate: The Case of Japan

31 Pages Posted: 11 Jul 2006

See all articles by Yuzo Honda

Yuzo Honda

Osaka University - Graduate School of Economics

Yoshihiro Kuroki

Chuo University

Abstract

We propose new proxy variables for monetary policy shocks in Japan for the period from July 1989 to March 2001 and investigate the effects of changes in the policy target variable on stock prices and the term structure of interest rates. We find that changes in the surprise component of the target variable significantly affect both intermediate-term and long-term interest rates. A surprise decrease in the target rate of 1% leads, on average, to a 3% increase in stock prices. The magnitudes of estimated reactions of financial variables are similar in Japan and the US.

Suggested Citation

Honda, Yuzo and Kuroki, Yoshihiro, Financial and Capital Markets' Responses to Changes in the Central Bank's Target Interest Rate: The Case of Japan. Economic Journal, Vol. 116, No. 513, pp. 812-842, July 2006, Available at SSRN: https://ssrn.com/abstract=916594 or http://dx.doi.org/10.1111/j.1468-0297.2006.01113.x

Yuzo Honda (Contact Author)

Osaka University - Graduate School of Economics ( email )

1-7 Machikaneyama
Toyonaka, Osaka, 560-0043
Japan

Yoshihiro Kuroki

Chuo University ( email )

2nd floor Blg 4 Tampa Campus
742-1 Higashinakano, Hachioji
Tokyo 192-03
Japan

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
11
Abstract Views
559
PlumX Metrics