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

Tatsuyoshi Okimoto and Sumiko Takaoka

Journal of International Financial Markets, Institutions and Money, 2020, vol. 64, issue C

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.

Keywords: Affine term structure; Credit spreads; Flight-to-quality; Unconventional monetary policy regime (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 G12 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:64:y:2020:i:c:s1042443119300290

DOI: 10.1016/j.intfin.2019.101143

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