Scarcity Effects of Quantitative Easing on Market Liquidity Evidence from the Japanese Government Bond Market

Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank's holdings of certain securities leads to a s...

Full description

Bibliographic Details
Main Author: Han, Fei
Other Authors: Seneviratne, Dulani
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2018
Series:IMF Working Papers
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:Quantitative easing could improve market liquidity through many channels such as relaxing bank funding constraints, increasing risk appetite, and facilitating trades. However, it can also reduce market liquidity when the increase in the central bank's holdings of certain securities leads to a scarcity of those securities and hence higher search costs in the market. Using security-level data from the Japanese government bond (JGB) market, this paper finds evidence of the scarcity (flow) effects of the Bank of Japan (BOJ)'s JGB purchases on market liquidity. Moreover, we also find evidence that such scarcity effects could dominate other effects when the share of the BOJ's holdings exceeds certain thresholds, suggesting that the flow effects may also depend on the stock
Physical Description:43 pages
ISBN:9781484353677