Log in
Login
Password
Remember
Lost password
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 

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
08:55aDJVivendi Chairman Ousts Longtime Chief of Canal Plus
08:55aDJJoy Global Cuts Guidance as Earnings, Sales Miss Marks
08:55aDJU.S. Trade Gap Narrows in July
08:55aDJCampbell Soup Results Improve
08:55aDJAOL to Buy Millennial Media
08:55aDJMedtronic Revenue Boosted by Covidien Acquisition
08:55aDJNatalie Massenet Leaves Net-a-Porter
08:55aDJNATO Opens Military Post in Lithuania
08:55aDJU.S. Jobless Claims Rise by 12,000
08:55a FORTIS : BELIZE-FINANCE-Opposition critical of agreement regarding BEL
Latest news
Advertisement
Hot News 
FORBIDDEN TECHNOLOGIES : Reports Loss In Half As Deferred Revenue Rises
Earnings, Trading Statements Calendar - Week Ahead
Integra LifeSciences to Acquire Total Ankle Replacement (Salto Talaris(R)) and Silastic Toe Replacement (Futura(TM)) Product Portfolios From Tornier N.V.
EMPRESARIA : Expects Annual Results To Beat Current Market Expectations
DART : AGM Statement and Announcement of Aircraft Order 03 September 2015
Most Read News
09/02 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION : ACCC concludes review of 'free range' and other similar claims in the pork industry
09/02 MRB MALAYSIAN RUBBER BOARD : Courtesy Visit By H.E Thai Ambassador to Malaysian Rubber Board
09/02 CEPA CANADIAN ENERGY PIPELINE ASSOCIATION : Do your beliefs about pipelines stand up to the science?
09/02 MRB MALAYSIAN RUBBER BOARD : Director General Attends Deputy Minister’s Hari Raya Aidil Fitri Celebration
09/02 HARRINGTON GLOBAL LIMITED : Acquires Securities of Range Energy Resources Inc.
Most recommended articles
08:52aDJAOL to Buy Millennial Media--Update
08:51a EUROPE MUST WAIT AT LEAST FIVE YEARS FOR BANK CONSOLIDATION : CEOs
08:50a ECB keeps QE total unchanged, promises more if necessary
08:47aDJCanada's Trade Deficit Narrowed in July
08:46aDJU.S. Jobless Claims Up By 12,000