The Center for Pacific Basin Studies promotes cooperation among central banks in the Pacific Basin and provides insight into and analysis of economic policy issues affecting the region.
Connect + Learn
Learn more about the people, background, and activities of the Center for Pacific Basin Studies
Pacific Basin Notes
Global Market Discipline during Recent Policy Tightening
| November 6, 2023
Financial market discipline, in the form of movements in yields charged on sovereign debt of emerging economies, during the 2021 onset of U.S. monetary policy tightening depended heavily on domestic economic conditions. This pattern matches yield movements during the 2013 taper tantrum. The pattern suggests that, while advanced economy policies can influence emerging market financial conditions, domestic policies such as government spending levels are also important. However, the differing responses for pandemic-related spending versus the overall current account suggest that markets distinguished between needed COVID-19 fiscal support and other spending.
Working Papers
Inflation Expectations, Liquidity Premia and Global Spillovers in Japanese Bond Markets
Jens H. E. Christensen and Mark M. Spiegel
We provide market-based estimates of Japanese inflation expectations using an arbitrage-free dynamic term structure model of nominal and real yields that accounts for liquidity premia and the deflation protection afforded by Japanese inflation-indexed bonds, known as JGBi’s. We find that JGBi liquidity premia exhibit significant variation, and even switch sign. Properly accounting for them significantly lowers the estimated value of the indexed bonds’ deflation protection and affects inflation risk premium estimates. After liquidity adjustment, long-term Japanese inflation expectations have remained relatively stable at levels modestly exceeding one percent during the pandemic period. We then utilize our estimated liquidity measure to confirm the existence of statistically significant and economically meaningful spillovers to the JGBi market from global bond market illiquidity, as proxied by periods of low U.S. Treasury market depth.
Conferences
2024 Pacific Basin Research – CALL FOR PAPERS
May 15, 2024
Federal Reserve Bank of San Francisco | San Francisco, CA
2023 Asia Economic Policy Conference: Global Linkages in a Post-Pandemic World
November 16 – November 17, 2023
Federal Reserve Bank of San Francisco | San Francisco, CA