Scarcity Effects of Quantitative Easing on Market Liquidity: Evidence from the Japanese Government Bond Market PDF Download
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Author: Mr.Fei Han
Publisher: International Monetary Fund
ISBN: 1484355342
Category : Business & Economics
Languages : en
Pages : 43
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Book Description
Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank’s holdings of certain securities leads to a scarcity of those securities and hence higher search costs in the market. Using security-level data from the Japanese government bond (JGB) market, this paper finds evidence of the scarcity (flow) effects of the Bank of Japan (BOJ)’s JGB purchases on market liquidity. Moreover, we also find evidence that such scarcity effects could dominate other effects when the share of the BOJ’s holdings exceeds certain thresholds, suggesting that the flow effects may also depend on the stock.
Author: Mr.Fei Han
Publisher: International Monetary Fund
ISBN: 1484355342
Category : Business & Economics
Languages : en
Pages : 43
Get Book Here
Book Description
Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank’s holdings of certain securities leads to a scarcity of those securities and hence higher search costs in the market. Using security-level data from the Japanese government bond (JGB) market, this paper finds evidence of the scarcity (flow) effects of the Bank of Japan (BOJ)’s JGB purchases on market liquidity. Moreover, we also find evidence that such scarcity effects could dominate other effects when the share of the BOJ’s holdings exceeds certain thresholds, suggesting that the flow effects may also depend on the stock.
Author: Kentaro Iwatsubo
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
The “Quantitative and Qualitative Monetary Easing” (QQE) enacted immediately after the inauguration of the Bank of Japan Governor Kuroda brought violent fluctuations in the prices of government bonds and deteriorated market liquidity. Does a central bank's government bond purchasing policy generally reduce market liquidity? Do conditions exist that can prevent the decrease? This paper analyzes how the Bank of Japan's purchasing policy changes influenced market liquidity. The results revealed that three specific policy changes contributed significantly to improving market liquidity: 1) increased purchasing frequency; 2) a decrease in the purchase amount per transaction; and 3) a reduced variability in the purchase amounts. These policy changes facilitated investors' purchase schedule expectations and helped reduce market uncertainty. The evidence supports the theory that the effect of government bond purchasing policy on market liquidity depends on the market's informational environment.
Author: Mr.Fei Han
Publisher: International Monetary Fund
ISBN: 1484353676
Category : Business & Economics
Languages : en
Pages : 43
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Book Description
Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank’s holdings of certain securities leads to a scarcity of those securities and hence higher search costs in the market. Using security-level data from the Japanese government bond (JGB) market, this paper finds evidence of the scarcity (flow) effects of the Bank of Japan (BOJ)’s JGB purchases on market liquidity. Moreover, we also find evidence that such scarcity effects could dominate other effects when the share of the BOJ’s holdings exceeds certain thresholds, suggesting that the flow effects may also depend on the stock.
Author: Woon Gyu Choi
Publisher:
ISBN:
Category : Liquidity (Economics)
Languages : en
Pages : 34
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Book Description
Author: Loriana Pelizzon
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: William Arrata
Publisher: International Monetary Fund
ISBN: 1484386914
Category : Business & Economics
Languages : en
Pages : 45
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Book Description
Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks’ excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we explore empirically the interactions between the PSPP and repo rates. We document different channels through which asset purchases may affect them. Using proprietary data from PSPP purchases and repo transactions for specific (“special") securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1 percent of a bond outstanding is associated with a decline of its repo rate of 0.78 bps. Using an instrumental variable, we find that the full effect may be up to six times higher.
Author: Mr.Gauti B. Eggertsson
Publisher: International Monetary Fund
ISBN: 145197566X
Category : Business & Economics
Languages : en
Pages : 27
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Book Description
This paper examines the effects of quantitative easing implemented by the Bank of Japan (BoJ) since early 2001, looking specifically at the impact on inflation expectations and real asset prices. It suggests a number of possible channels through which quantitative easing may have exerted influence, and reviews some of the empirical evidence linking open market operations and long-term bond purchases to real yields and other asset prices. It argues that quantitative easing has had smaller effects on nominal and real variables than desired, mainly because the BoJ has not succeeded in credibly communicating its policy intentions once the zero bound on short-term rates ceases to be binding. It argues that setting clear goals for inflation and a return to interest rate targeting are not only key elements of a successful strategy to avoid deflation, but are also essential to pin down expectations and avoid instability once deflation wanes.
Author: Mr.Serkan Arslanalp
Publisher: International Monetary Fund
ISBN: 1513557599
Category : Business & Economics
Languages : en
Pages : 22
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Book Description
Portfolio rebalancing is a key transmission channel of quantitative easing in Japan. We construct a realistic rebalancing scenario, which suggests that the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds. Nonetheless, the BoJ could deliver continued monetary stimulus by extending the maturity of its JGB purchases or by scaling up private asset purchases. We quantify the impact of rebalancing on capital outflows and discuss JGB market signals that can be indicative of limits being within reach.
Author: Changyong Rhee
Publisher: International Monetary Fund
ISBN: 1513566598
Category : Health & Fitness
Languages : en
Pages : 105
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Book Description
The Asia-Pacific region was the first to be hit by the COVID-19 pandemic; it put a strain on its people and economies, and policymaking became exceptionally difficult. This departmental paper contains the assessment of the key challenges facing Asia at this critical juncture and policy advice to the region both to address the current challenges and to build the foundations for a more sustainable and inclusive future. The paper focuses on (1) adjusting to the COVID-19 shock, (2) using unconventional policies when policy space is limited, (3) dealing with debt, and (4) helping the vulnerable and greening the recovery. The paper first presents the different ways countries are adjusting to the COVID-19 shock.
Author: Mr.Jochen R. Andritzky
Publisher: International Monetary Fund
ISBN: 1475570058
Category : Business & Economics
Languages : en
Pages : 30
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Book Description
This paper introduces a new dataset on the composition of the investor base for government securities in the G20 advanced economies and the euro area. During the last decades, investors from abroad have increased their presence in government bond markets. The financial crisis broke this trend. Domestic financial institutions allocated a larger share of government securities in their portfolios, as Japan has done since its crisis in the 1990s. Increases in the share held by institutional investors or non-residents by 10 percentage points are associated with a reduction in yields by about 25 or 40 basis points, respectively. The data show a varied lead-lag relationship between bond yields and investor holdings. Portfolio balance estimates suggest that a change in statutory or regulatory holdings of government securities to the tune of 10 percent of the outstanding stock causes expected returns to decline by 7 to 25 basis points.
