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The dynamic Nelson–Siegel (DNS) model and even the Svensson generalization of the model have trouble in fitting the short maturity yields and fail to grasp the characteristics of the Japanese government bonds yield curve, which is flat at the short end and has multiple inflection points. Therefore, a closely related generalized dynamic Nelson–Siegel (GDNS) model that has two slopes and curvatures is considered and compared empirically to the traditional DNS in terms of in-sample fit as well as out-of-sample forecasts. Furthermore, the GDNS with time-varying volatility component, modeled as standard EGARCH process, is also considered to evaluate its performance in relation to the GDNS. The GDNS model unanimously outperforms the DNS in terms of in-sample fit as well as out-of-sample forecasts. Moreover, the extended model that accounts for time-varying volatility outpace the other models for fitting the yield curve and produce relatively more accurate 6- and 12-month ahead forecasts, while the GDNS model comes with more precise forecasts for very short forecast horizons. [ABSTRACT FROM AUTHOR]

The monetary policy targets the short rates; however, during zero interest rate policy (ZIRP), the short end of the yield curve cannot serve as a policy instrument. Relying on the joint yields-macro latent factors model, this study empirically examines the effect of monetary policy stances on term structure and the possible feedback effect on the real sector using the Japanese experience of ZIRP. The analysis indicates that it is the entire term structure that transmits the policy shocks to the real economy rather than the yield spread only. The monetary policy signals pass through the yield curve level and slope factors to stimulate the economic activity. The curvature factor, besides reflecting the cyclical fluctuations of the economy, acts as a leading indicator for future inflation. In addition, policy influence tends to be low as the short end becomes segmented toward medium/long-term of the yield curve. Furthermore, volatility in bond markets is found to be asymmetrically affected by positive and negative shocks and long end tends to be less sensitive to stochastic shocks than the short maturities. The expectation hypothesis of the term structure does not hold during the ZIRP period. [ABSTRACT FROM PUBLISHER]

This article assesses the program for Financial Revival (PFR) of the Japanese banks. To achieve the programme's goal of maximizing banks' profits, the government can inject capital and reduce bad loans of banks subject to the government budget constraint. We conclude that the government can achieve the programme's goal only in areas where the Bank for International Settlements (BIS) capital ratio regulations are binding. The government should restrain to reduce bad loans when the unit price of doing so increases and cannot maximize depositors' or borrowers' surpluses together with banks' profits. The Basel II Framework enhances banks' profits under the programme. The empirical evidence indicates that the necessary condition for achieving the programme's goal is satisfied. [ABSTRACT FROM AUTHOR]

In a recent year, the conditional expectation for technical inefficiency (i.e., the predictor) in stochastic frontier production models and its confidence interval are proved to be increasing in the individual firm's inefficiency effect, which is defined as the mean of the normal distribution that is truncated at zero. This paper illustrates how the two recent contributions work in practice and how these findings are significant, by using the Battese and Coelli (1995) type specification and giving an empirical study on the Japanese pharmaceutical industry. [ABSTRACT FROM AUTHOR]

The stochastic volatility (SV) model can be regarded as a nonlinear state space model. This article proposes the Laplace approximation method to the nonlinear state space representation and applies it for estimating the SV models. We examine how the approximation works by simulations as well as various empirical studies. The Monte Carlo experiments for the standard SV model indicate that our method is comparable to the Monte-Calro Likelihood (MCL; Durbin and Koopman, 1997), Maximum Likelihood (Fridman and Harris, 1998), and Markov chain Monte Carlo (MCMC) methods in the sense of mean square error in finite sample. The empirical studies for stock markets reveal that our method provides very similar estimates of coefficients to those of the MCL. We show a relationship of our Laplace approximation method to importance sampling. [ABSTRACT FROM AUTHOR]

The paper investigates whether the Japanese bank lending causes the long stagnation in the 1990s and if so whether this effect on the growth is more persistent than in the 1980s. Applying a VAR model for the annual prefecture panel data, the former can be verified by Granger causality test and the latter by impulse response function. There exists only one way causality from the loan to the GDP in the slump periods, while two way causalities exist in the 1980s. The shock in the loan equation is less persistent than the shock in GDP in the 1980s, but the persistence is reversed in the 1990s. [ABSTRACT FROM AUTHOR]

The median is proposed as an alternative to the expectation of the conditional distribution in order to predict the technical inefficiency in stochastic frontier production models with panel data. Numerical comparison reveals that the two predictors can take different values when the distribution is skewed. [ABSTRACT FROM AUTHOR]