Member access

4-Traders Homepage  >  News

News

Latest NewsCompaniesMarketsEconomy & ForexCommoditiesHot NewsMost Read NewsRecomm.Business LeadersVideosCalendar 

Bank of Japan : (Research Paper) Financial Markets, Monetary Policy and Reference Rates

12/27/2012 | 08:23pm US/Eastern

: Assessments in DSGE Framework

December 28, 2012
Nao Sudou*

Abstract

In this paper, we explore the roles played by reference rates in business cycle fluctuations using a medium-scale full-fledged dynamic stochastic general equilibrium (DSGE) model. Our model is an extended model of chained-credit-contract model developed by Hirakata, Sudo, and Ueda (2011) estimated by the Japanese data. In our economy, there are interbank as well as lending markets. Credit spreads determined in the markets are affected by the borrowers' creditworthiness and degree of informational friction in the credit markets. Focusing on the role of reference rates that affects economic decisions through the delivery of information about the nature of economy, we evaluate channels through which the reference rates affects credit spreads and macroeconomic activities. We find that (i) reference rates may mitigate informational friction in the credit markets, leading to a higher investment, output, and inflation, (ii) reference rates may contribute to economic stabilization by providing accurate economic forecast, and (iii) reference rates may bring about unintended consequence of monetary policy implementation by adding a noise to the credit spreads. Our results indicate the importance of reliable reference rates, particularly under the environment where uncertainty prevails, from the perspective of resource allocation, stabilization, and policy implementation.

Keywords
Reference Rates; Credit Spreads; Informational Friction, Signal Extraction, Monetary Policy

The author would like to thank Kosuke Aoki, Ichiro Fukunaga, Jacob Gyntelberg, Daisuke Ikeda, Selahattin Imrohoroglu, Sohei Kaihatsu, Koichiro Kamada, Ryo Kato, Tomiyuki Kitamura, Shun Kobayashi, Marco Lombardi, Koji Nakamura, Kenji Nishizaki, Yukisato Ohta, Masashi Saito, Yuki Teranishi, Yuki Uchida, Yoichi Ueno, and Hiromi Yamaoka for their useful comments. Views expressed in this paper are those of the author and do not necessarily reflect the official views of the Bank of Japan.

* Director, International Division, Financial System and Bank Examination Department
E-mail : nao.sudou@boj.or.jp
Notice

Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (post.prd8@boj.or.jp) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.

distributed by
React to this article
Latest news
Date Title
07:28p RCG : Half Year Results Presentation
07:28p GOLDEN AGRI RESOURCES : achieved outstanding full year 2014 plantation performance while fourth quarter saw improvement across all business segments
07:28p SAPPORO : Notice of the Transfer of Trust Beneficiary Rights of Assets Held by a Consolidated Subsidiary and the Posting of Extraordinary Income
07:27p SYNAGEVA BIOPHARMA : reports 4Q loss
07:25p ASPEN AEROGELS : reports 4Q loss
07:24p Investors ask oil companies to disclose refineries' risks from climate change
07:24p HFF : posts 4Q profit
07:24p ACADIA PHARMACEUTICALS : reports 4Q loss
07:24p AMPCO PITTSBURGH : reports 4Q loss
07:24p HONDA MOTOR : Woman keeps score the old-fashioned way at Honda Classic
Latest news
Advertisement
Hot News 
New Zealand Fund Files Debt Proceedings Against Novo Banco
SORIN : Cyberonics and Sorin Group to Merge, Creating a New Premier Global Medical Technology Company
ROBERT WALTERS : Profit Surges On Fee Income Growth Across Business
ACCESSO TECHNOLOGY : ShoWare Wins 11 New Contracts In Mexico, US And Canada
PGT : misses 4Q profit forecasts
Most Read News
06:04p Bank of America accounting chief, two directors to step down
06:00p DEUTSCHE TELEKOM : sees dividend growth in line with free cash flow
06:15p What is net neutrality? U.S. debates once again
06:31pDJSOUTHWESTERN ENERGY : to Cut Investment Spending
06:01p HELIX ENERGY SOLUTIONS : and BP Agree to Amend Multi-Year Q5000 Contract
Most recommended articles
02/20DJMarkets Hang on Greek Impasse
07:16pDJJapan Inflation Continues to Slow
07:13pDJGRAIN HIGHLIGHTS : Top Stories of the Day
07:12pDJPlan to Sell Argentine Debt Collapses -- Update
07:10p UK consumer confidence holds at high level in February - GfK
Dynamic quotes  
ON
| OFF