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Central bank balance sheets and long-term interest rates : Revisiting Japan's unconventional monetary policy experience

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  • NAKAJIMA, Jouchi

Abstract

This paper revisits the relationship between the central bank’s balance sheet and long term government bond yields, and reports estimates regarding the impact of the Bank of Japan’s government bond purchase programs on nominal yields. Following previous studies quantifying the portfolio balance effect of asset purchases in discussions of the Federal Reserve’s balance sheet policies, we estimate the relationship between the size and maturity structure of Japanese government bonds held by the public and the nominal 10-year yield. We find that the government bond purchase programs were effective in lowering the long-term interest rate and preventing an upward shift in the yield curve amid the government’s increased financing needs.

Suggested Citation

  • NAKAJIMA, Jouchi, 2024. "Central bank balance sheets and long-term interest rates : Revisiting Japan's unconventional monetary policy experience," Discussion Paper Series 758, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hituec:758
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/84428/DP758.pdf
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    More about this item

    Keywords

    Asset purchase program; Balance sheet policy; Portfolio balance effect; Unconventional monetary policy;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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