A0620
Title: Skewed interest rate expectations and effects of central banks' market operations: Evidence from granular data
Authors: Takatoshi Sasaki - Bank of Japan (Japan) [presenting]
Taihei Sone - Bank of Japan (Japan)
Daisuke Miyakawa - Waseda University (Japan)
Kohei Maehashi - International Monetary Fund (United States)
Abstract: Using trade repository data on transaction records of Japanese yen-denominated overnight index swaps, individual market participants' expectations on future interest rates are estimated, and their time-variant distribution is documented with its higher order moments. By leveraging this novel information, quantitative exercises are implemented to verify the state-dependent effects of the Bank of Japan (BoJ)'s outright purchase of Japanese Government Bonds (JGBs) on the JGB yields conditional on the moments of this expectation distribution. It is found that the BoJ's fixed-rate purchase operation resulted in a larger reduction of the JGB yields when the expectation distribution on future interest rates was skewed more positively. This empirical result implies the usefulness of the estimated expectation distribution for central banks to conduct market operations effectively.
