THE JAPANESE TERM STRUCTURE OF INTEREST RATES

This dissertation examines the Japanese term structure of interest rates. The first chapter is a study of the theory and practice of term structure measurement. Particular attention is paid to the applications of spline theory to the measurement problem. A new method of measurement based upon cyclical theories of the term structure is also put forward. The second chapter is a brief review of debt management policies in Japan. The object of this chapter is the construction of a comprehensive set of data pertaining to the maturity structure of fixed-term debt outstanding in Japan's bond markets. The third chapter contains tests of implications for three groups of theories of the interest rate term structure. (i) The pure expectations theories of the term structure are rejected upon the basis of tests of their variance bound implications. (ii) Tests for links between debt management policies and the term structure use the maturity structure data developed in Chapter II. Several tests for such links are rejected. (iii) A number of hypotheses which connect inflation and inflation uncertainty to the term structure are supported by the data. It was also found the variability of holding period yields across terms of maturity can be partially described in an autoregressive conditional heteroscedastic (ARCH) framework.