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Do liquidity enhancement auctions improve the market liquidity in the JGB market?

Takahiro Hattori

Economics Letters, 2019, vol. 183, issue C, -

Abstract: This paper firstly analyzes the Liquidity Enhancement Auction, which is a unique auction implemented in the Japanese Government Bond (JGB) markets. To improve the market liquidity in the JGB market, the Ministry of Finance, Japan (MOF) uses this auction to issue additional older bonds that lack liquidity. Our results show that this auction significantly improves the liquidity measure when the MOF uses this auction to supply older bonds. Moreover, we empirically show that this auction provides a persistent effect on the market liquidity. Our paper suggests that this unique auction could be an additional tool for non-Japanese governments to complement the market liquidity.

Keywords: Liquidity; Japanese Government Bond; Liquidity Enhancement Auction (search for similar items in EconPapers)
JEL-codes: D44 E43 G12 G18 H63 (search for similar items in EconPapers)
Date: 2019
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