TY - JOUR
T1 - No-arbitrage determinants of credit spread curves under the unconventional monetary policy regime in Japan
AU - Okimoto, Tatsuyoshi
AU - Takaoka, Sumiko
N1 - Funding Information:
The authors would like to thank to the editor-in-chief of Journal of International Financial Markets, Institutions & Money, Barbara Będowska-Sójka, Hirokuni Iiboshi, Junko Koeda, participants at the 2017 Nippon Finance Association Meeting, the 2017 Asian Meeting of the Econometric Society, IAAE 2017, the 2018 Vietnam Symposium in Banking and Finance, and seminar participants at Australian National University, University of New South Wales, Keio University, Kobe University, Bank of Japan, Mizuho Securities, and Research Institute of Economy, Trade and Industry (RIETI) for their helpful comments. A part of this study is a result of the research project at RIETI by the first author. The second author gratefully acknowledges the financial assistance provided by the Japan Society for the Promotion of Science (JSPS) KAKENHI grant number JP25705010. This research was funded in part by Nomura Foundation grant number N17-3-E30-005 and Japan Securities Scholarship Foundation.
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2020/1
Y1 - 2020/1
N2 - We introduce an affine term structure model with observed macroeconomic factors for credit spread curves under the unconventional monetary policy regime in Japan. Empirical results based on the model selection using Japanese data demonstrate that the credit spread curves are dominated by the monetary policy and suggest that global economic forces, such as the U.S. Treasury yield and Baa-Aaa credit spread, play a major role in the dynamics of credit spread curves, complementing a growing body of literature explaining what drives credit spread curves. Our contemporaneous response and historical decomposition analyses find that monetary policy and global economic and financial forces have large impacts on credit spread curves at all maturities and rating classes.
AB - We introduce an affine term structure model with observed macroeconomic factors for credit spread curves under the unconventional monetary policy regime in Japan. Empirical results based on the model selection using Japanese data demonstrate that the credit spread curves are dominated by the monetary policy and suggest that global economic forces, such as the U.S. Treasury yield and Baa-Aaa credit spread, play a major role in the dynamics of credit spread curves, complementing a growing body of literature explaining what drives credit spread curves. Our contemporaneous response and historical decomposition analyses find that monetary policy and global economic and financial forces have large impacts on credit spread curves at all maturities and rating classes.
KW - Affine term structure
KW - Credit spreads
KW - Flight-to-quality
KW - Unconventional monetary policy regime
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U2 - 10.1016/j.intfin.2019.101143
DO - 10.1016/j.intfin.2019.101143
M3 - Article
AN - SCOPUS:85077164618
SN - 1042-4431
VL - 64
JO - Journal of International Financial Markets, Institutions and Money
JF - Journal of International Financial Markets, Institutions and Money
M1 - 101143
ER -