No-arbitrage determinants of credit spread curves under the unconventional monetary policy regime in Japan

Tatsuyoshi Okimoto, Sumiko Takoka

    Research output: Contribution to journalArticle

    Abstract

    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.
    Original languageEnglish
    Pages (from-to)1-21
    JournalJournal of International Financial Markets, Institutions and Money
    Volume64
    Issue number101143
    DOIs
    Publication statusPublished - 2020

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