Journal of Business & Economic Policy

Effects of Direct Underwriting of Public Bonds by the Central Bank in Japan
Motonori Yoshida

Abstract
This study uses a dynamic computable general equilibrium OLG (overlapping generations) model to elucidate the effects of direct underwriting of public bonds (DUPB) by the central bank, which has the potential to support the Japanese economy and government finance and to improve the efficiency of added-value distribution. The results demonstrate that the Japanese economy and government finance become sustainable through DUPB by the central bank but, on the other hand, collapse when public bonds are absorbed by the market. This is due to the fact that in the former case, payment of the central bank’s seigniorage to the national treasury improves the government’s finance situation.

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