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Identifying the Effect of Bank of Japan's Liquidity Facilities:

The Case of CP Operations During Financial Turmoil

December 2009
Yasuo Hirose*1
Shinsuke Ohyama*2

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To what extent did the Bank of Japan's liquidity facilities for corporate financing reduce commercial paper (CP) issue-rates in Japan? To answer this question, we propose a simple structural model that illustrates the market for the CP operations and their effects on the CP primary market. Based on the structural model, we measure the effects of the CP operations as differences between the actual rates in the primary market and the counterfactual rates without the operations, and decompose the effects into three factors. We apply our model to identifying effects of CP operations from October 2008 to May 2009, including the period after the Bank of Japan introduced the outright purchase of CP and its special funds-supplying operation accepting CPs as collateral in addition to the CP repo operation. Our results suggest that the CP repo operation and the outright purchase of CP had remarkable effects intially, however, later their effects were subdued, and that effects of the special funds-supplying operation were substantial and persistent from January to April 2009.

Commercial paper; Corporate finance; Market operations; Monetary policy

JEL classification:
JEL classification: E50; E52; E58; G10

We would like to thank Steen Ejerskov, James McAndrews, participants at the European Central Bank Workshop on "Challenges to monetary policy implementation beyond the financial market turbulence," and our colleagues at the Bank of Japan for their helpful comments and discussions. Any errors belong to the authors. The views expressed in this paper are the authors' and do not necessarily reflect those of the Bank of Japan.

  • *1 Monetary Affairs Department, Bank of Japan
  • *2 Monetary Affairs Department, Bank of Japan


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