Skewed Interest Rate Expectations and Effects of Central Banks' Market Operations: Empirical Findings Using Granular Transaction Data

Kohei Maehashi, Daisuke Miyakawa, Takatoshi Sasaki and Taihei Sone
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Kohei Maehashi: Bank of Japan
Daisuke Miyakawa: Waseda University
Takatoshi Sasaki: Bank of Japan
Taihei Sone: Bank of Japan

No 25-E-7, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Using trade repository data on transaction records of Japanese yen-denominated overnight index swap, we estimate individual market participants' expectations on future interest rates and document their time-variant distribution with its higher order moments. By leveraging this novel information, we implement quantitative exercises 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. We find 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.

Keywords: Interest rate expectations; Skewness; Granular data; Trade repository; Overnight index swap; Market operations (search for similar items in EconPapers)
JEL-codes: E43 E58 G15 G20 (search for similar items in EconPapers)
Date: 2025-05-16
New Economics Papers: this item is included in nep-mon
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