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

by Fei Han and Dulani Seneviratne

Series:Working Paper No. 18/96
ISBN 9781484353677
Code: #WPIEA2018096

Publication year: 2018

Cdn: $27.00; US: $23.50
Paperback
Language: English
43 pages
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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.
Scarcity Effects of Quantitative Easing on Market Liquidity
Cdn: $27.00; US: $23.50
International Monetary Fund (IMF) BookID: 122559 Added: 2018.5.15