1998 Fiscal Year Final Research Report Summary
A Theoretical and Empirical Study on the Mechanism of BOJ's Market Operation
| Project/Area Number |
09630095
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| Research Category |
Grant-in-Aid for Scientific Research (C)
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| Allocation Type | Single-year Grants |
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| Section | 一般 |
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| Research Field |
Public finance/Monetary economics
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| Research Institution | Kagawa University |
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Principal Investigator |
FUJII Hiroshi Kagawa University, Faculty of Economics, Professor, 経済学部, 教授 (00145038)
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| Project Period (FY) |
1997 – 1998
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| Keywords | market operation / the Bank of Japan / reserve adjustment / interest target policy / zero interest policy / liquidity trap |
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| Research Abstract |
The aim of this research is to analyze the mechanism and macroeconomic implications of the BOJ's market operation, to put it concretely, to formulated the BOJ's operation as dynamic reserve adjustment model, to simulate the process that the target inter-bank rate is attained by the BOJ, and to analyze the merits and demerits of this way of the BOJ's operation.
Points of model building are how to formulate optimal reserve adjustment behavior with adjustment cost and expectation formation of cash position. As the first approximation, I made a model with reserve adjustment behavior of ad hoc type with adaptive expectation on inter-bank rate and simulated it. In result, slower adjustment speed of expected short-term rate is, smaller degree of reserve demand response to short-term rate is, better interest targeting goes.
ext, I regarded the BOJ's interest target policy as interest smoothing policy in a broad sense and analyzed the merits and demerits of the policy with attention to interest risk burden to bank. In result, as the interest smoothing policy increase the degree of lending response to short-term rate by lightening interest risk burden and giving signaling effect of policy information, the policy has a more effect.
Finally, I investigated characteristics of the current monetary policy symbolized by zero interest policy and how the Japanese economy in liquidity trap' is explained by macro model of interest target. In result, increase of cash preference caused by a series of financial failure, made the BOJ change traditional operation procedure and efficacy of zero interest policy depends on whether the policy lowers premium of the market risk and raise banking system's capacity for risk-taking.
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