The Research On Effectiveness Of Monetary Policy Transmission In China’s Bond Market

The transmission mechanism of monetary policy is one of the focal point of macroeconomics, and the core of the field of monetary policy. Experience of developed countries shows that bond market is the important platform and channel for central bank monetary policy, improves the effectiveness of monetary policy. With the gradual maturity of our bond market, it is a main problem worth attention of theorists and practitioners that how to exert the function of bond market, rationalize all aspects and elements of bond market in monetary policy transmission, implement interaction between bond market development and monetary policy.This article base on the theory of non-neutral monetary policy, use related knowledge of macroeconomics, financial markets, econometrics, statistics, advanced mathematics, divide the transmission mechanism of monetary policy into economic entities transmission and economic variables transmission based on its definition, conduct the effectiveness of bond market monetary policy economic entities transmission and economic variables transmission. This is a horizontal line through the full article. At the same time, follow the research paradigm of theory of deduction---specific argument---suggestions, analysis the effectiveness of China’s bond market monetary policy transmission in depth and systematic from multi-angle and multi-dimensional, and propose a set of practical innovation strategy to guide the healthy development of bond market, improve the effectiveness of monetary policy transmission. This is a vertical line through the full article.In general, bond market in monetary policy transmission plays the role of the media and carrier of open market operations, the experience field of interest rate, the critical support of the internationalization of RMB, guard and defuses systemic financial risk. Monetary policy transmission in bond market includes economic entities transmission and economic variables transmission. They are both interrelated and mutually different. Economic variables transmission can be divided into internal and external transmission; they constitute the whole process of monetary policy transmission. Bond market has different positive and negative effects on money demand and supply, making central bank considering the effects from financial market development such as bond market and stock market except economic entities development. From the practical point of view, first, our bond market has experienced initial stage, exploration stage and rapid growth stage, each period has its typical characteristics. Second, the scale of our bond (stock, issuance, trading volume) increases rapidly, market structure (product structure, term structure, investor structure) is not reasonable, market liquidity is low, market system (trading system, issuing system, custody settlement system, credit rating system, regulation system) is imperfect. Third, the development of our transmission mechanism of monetary policy shows, after1998, the function of bond market in transmission mechanism of monetary policy gradually began to appear and growing.In terms of effectiveness evaluation and testing, on one hand, through constructing dynamic optimization model of central bank effectiveness, we find that the time of transmission of monetary policy directly depends on the commercial banks sensitivity to monetary policy signals and that commercial banks reaction to monetary policy is more important than the businesses and residents when implement expansionary monetary policy; the businesses and residents reaction to monetary policy is more important than commercial banks when implement tightening monetary policy. But because of the particular behavior characteristics of microeconomic entities such as China’s commercial banks, business, bond market exist the signal leakage and conduction ineffective when transmitting monetary policy. On the other hand, through constructing the monthly varying parameter model of time series by using the state space methods (SSM), we find that the effects from interest to bond price is larger than money supply in the bond market inner transmission of monetary policy. In the external transmission phase, bond market effects investment largest and then consumer. Among each link of internal transmission phase and external transmission phase, the effects from long-term interest rates to bond price is the biggest, the transmission effectiveness from long-term interest rates to bond price is the best.In summary, the main factors which effect China monetary policy transmission in bond market include the scale is still small, the structure is not reasonable, the system is not sound, the liquidity is low, the reaction from market players to monetary policy signals is slow. From the view of constructing a mature and sound bond market, we discuss the policy measure which can improve the effects of monetary policy transmission, including clearing the idea of market development, expanding the breadth of the development of bond market, increasing the depth of the development of bond market, enhancing the flexibility of the development of bond market, improving the construction of bond market system. This can build China a bond market with appropriate scale, high liquidity, sound system and certain depth of development, so the central bank’s monetary policy intentions can be timely and effective transmitted.This article is both theoretical and practical. The theoretical contribution is to clarify the theoretical development of monetary policy transmission in bond market, build systematic theoretical framework; the practical contribution is to present the whole picture of China’s bond market development and monetary policy transmission, provide intellectual support for its interaction.