Abstract

This paper aims to empirically model the term structure of the Japanese government bond (JGB) yields. Specifically, we use bivariate-vector error correction models (VECMs) and attempt to capture the relations between various shorter-term and longer-term JGB yields. The interesting findings derived from our investigations by applying VECMs are as follows. 1) First, we find that the linkage between longer-term JGB yields and shorter-term JGB yields is effectively captured by the cointegrating equations (CEs) in the VECMs. 2) Second, we also reveal that, in general, the CEs in the VECMs for the JGBs’ term structure statistically significantly explain the next month’s time-series changes of the longer-term JGB yields.

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