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A note on modelling yield curve control: A target-zone approach

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  • Hui, Cho-Hoi
  • Wong, Andrew
  • Lo, Chi-Fai

Abstract

This note uses a target-zone model to study the bond yield movements under yield curve control. The bond yield is assumed to be quasi-bounded in a band, but can breach a cap under a restricted condition of its dynamics. The empirical results using the 10-year Japanese Government Bonds suggest that this model can describe the yield dynamics under yield curve control. Co-integration results show spill-over effects from US Treasury yields to the Japanese Government Bond yield dynamics. While the bond yield was bounded below the caps, the conditions for breaching the caps were met in October 2018 and March 2021.

Suggested Citation

  • Hui, Cho-Hoi & Wong, Andrew & Lo, Chi-Fai, 2022. "A note on modelling yield curve control: A target-zone approach," Finance Research Letters, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003063
    DOI: 10.1016/j.frl.2022.103076
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    Cited by:

    1. Koichiro Moriya & Akihiko Noda, 2023. "On the Time-Varying Structure of the Arbitrage Pricing Theory using the Japanese Sector Indices," Papers 2305.05998, arXiv.org, revised Mar 2024.

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    More about this item

    Keywords

    Target zone; Yield curve control; Quasi-bounded process;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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