JGBs’ chronically low nominal yields: a VEC approach

Abstract

ABSTRACT Low short-term interest rates, induced by the Bank of Japan’s (BoJ) accommodative monetary policy, is mainly responsible for keeping long-term Japanese government bonds’ (JGBs) nominal yields exceptionally low for a protracted period. Elevated government debt and deficit ratios do not exert upward pressure on JGBs’ nominal yields. This paper provides an empirical investigation of chronically low nominal yields of JGBs from a Keynesian perspective. It deploys a Vector Error Correction (VEC) approach to model long-term government bond yields.