Empirical Modeling of the Government and Corporate Bond Yields: The Case of Japan

Abstract

This paper takes an empirical approach to modeling the relations among various Japanese bond yields by applying the vector error correction models (VECMs). Our empirical examinations derive several interesting findings as follows. First, we reveal that 1) the bivariate relations of various Japanese bond yields are effectively captured by the cointegrating equations (CEs) in the VECMs and 2) the CEs often well explain the one-month-ahead changes of the various Japanese bond yields. Further, our impulse response analyses also clarify that 3) the yields of the Nikkei bond indices are mutually positively related and 4) the Japanese government bond (JGB) yields are much strongly affected by the corporate bond yields in Japan.