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
12:27a TORONTO DOMINION BANK : Advantages' CEO Fran Biderman-Gross Gets 5 Boro Chamber of Commerce 1st Annual MWBE Award
12:27a AMGEN : Files Applications in the US and Europe for Kyprolis (carfilzomib) for the Treatment of Relapsed Multiple Myeloma
12:27a FEDERAL REALTY INVESTMENT : Taps Hilton Worldwide Executive to Lead Residential Business
12:27a APPLE : NCSBN CEO to Retire
12:27a REDWOOD : Declares Dividend Distribution Tax Information for 2014
12:27a HURON CONSULTING : to Acquire Studer Group
12:27a CIGNA : to Acquire QualCare Alliance Networks
12:27a PFIZER : Reports Fourth-Quarter and Full-Year 2014 Results; Supplies 2015 Financial Guidance
12:27a SORIN : Concludes Patient Enrollment for Perceval IDE Study in the USA
12:27a BOHAI LEASING : Bravia Capital Coordinates Acquisition of Cronos by Bohai Leasing
Latest news
Advertisement
Hot News 
BANCO ESPIRITO SANTO : Drought woes spread to another Brazilian state
BERKELEY MINERAL RESOURCES : Obsidian IR
RAMBLER METALS & MINING : Implements Revised Plan at the Ming Copper-Gold Mine
UNISYS : posts 4Q profit
FAIR ISAAC : posts 1Q profit
Most Read News
01/30 INTEL : Tech Industry Leaders Are Beginning To Accept The Diversity Challenge; U.S. Law Partners Should Do The Same
01/30 BANKS ISLAND GOLD : Releases Third Quarter Report
01/30 AT&T top buyer at U.S. airwaves auction; Dish spends big
01/30 Honda says fatal crash involved Takata air bag inflator rupture
01/30 BUSINESS MACHINES : IBM boss gets bonus despite company's woes
Most recommended articles
01/30DJU.S. ECONOMIC INDICATORS : Housing Data, Latest 6 Months
01/30DJCCB Consumer Confidence Survey-Historical
01/30DJU.S. New Home Sales-Jan 30 -2-
01/30DJU.S. New Home Sales-Jan 30
01/30DJCHINA MINSHENG BANK : Operations Normal Despite Bank President's 'Personal Matter'
Dynamic quotes  
ON
| OFF