A Study On The Operational Mode Of Interest Rate Corridor For China's Monetary Policy

In the “13th Five-Year Plan”,it is proposed to “improve the operational targets,regulatory framework and transmission mechanisms of monetary policies,establish mechanisms for target interest rates and interest rate corridors,and shift our focus from quantitative to price-based monetary policies.” The 19 th Party Congress Report puts forward to “improve the framework of regulation underpinned by monetary policy and macro-prudential policy,and make interest rates and exchange rates become more market-based”.In 2013,the People's Bank of China created Standing Lending Facilities(SLF).In 2015,it tried to establish an interest rate corridor with SLF interest rate as the upper limit rate.From February 2016,it extended the regular open market operation twice a week to every daily operation.It's a big step in improving the interest rate corridor mechanism and open market operations,and realizing the transition of monetary policy from quantitative control to price-based regulation.In the “China Monetary Policy Implementation Report” launched by the People's Bank of China in each quarter,the expression of the interest rate corridor began with “exploring the construction of interest rate corridor mechanism” and later changed to “improving the interest rate corridor mechanism”.In the fourth quarter of 2018,"the initial establishment of the interest rate corridor." was formally proposed first time.The construction of interest rate corridor mechanism is an important part of China's interest rate marketization reform,and it is a key step in China's monetary policy transformation from quantitative control to price-based regulation.In this context,summarizing the experience of China's interest rate corridor mechanism construction and exploring the regulation mode of China's monetary policy interest rate corridor has important theoretical and practical significance.This paper expounds the theoretical basis of interest rate corridor regulation,reviews and summarizes the construction of interest rate corridor mechanism in China,discusses the determination of equilibrium interest rate,the choice of interest rate corridor regulation mode and the adjustment of interest rate corridor width,and regulates the interest rate corridor.The effect was empirically analyzed,and on this basis,the policy recommendations for improving the interest rate corridor mechanism in China were put forward.In addition to the introduction,the paper is mainly composed of the following parts:In the first chapter,the related concepts and theoretical basis of interest rate corridor regulation are discussed and studied.Starting from the interpretation of the interest rate corridor,the three modes of the interest rate corridor are introduced,namely the interest rate corridor system with intermediate target interest rate,the “floor” system and the “ceiling” system,which explains the standing convenience and its types,and discusses the regulation of interest rate corridors.Taylor rule and expected management theory.The second chapter analyzes the experience of exploration and practice of China's interest rate corridor regulation mode.The operating conditions of China's interest rate corridor mechanism are basically in place,which is reflected in the steady advancement of interest rate marketization,the full establishment of the commercial bank's market entity status,the significant enhancement of financial supervision capability,and the gradual marketization of the RMB exchange rate formation mechanism.Piloting and post-promotion are the important experiences of China's interest rate corridor regulation.Symmetric interest rate corridors and close cooperation with quantitative policy instruments are two characteristics of China's current interest rate corridor mechanism.The third chapter builds an equilibrium interest rate formula and an optimal upper limit equation are derived under the interest rate corridor.On the basis of setting the operation plan of the central bank,starting from the analysis of the balance sheet of the central bank and the commercial bank,the local equilibrium interest rate model and the optimal corridor upper interest rate model in the interest rate corridor mode are established,and the symmetric wide corridor and symmetry are expounded.Narrow corridors,“floor” systems,narrow-rate interest rate corridor systems,and other interest rate corridor models and options for relevant countries.Chapter 4 studies the effects of the adjustment of the interest rate corridor width under the New Keynesian model.Based on the model of Gertler and Kiyotaki(2011),the heterogeneous friction and interest rate corridors of the interbank market were introduced,including the family sector,the banking sector,intermediate product producers,capital goods producers,and final product producers.The six new representative departments of the Central Bank extended the New Keynesian model and conducted a steady-state analysis of the New Keynesian model,discussing the policy effects of the adjustment of the interest rate corridor width.Chapter 5 analyzes the the effect of China's interest rate corridor regulation.It establishes the cointegration equation of the market interest rate Shibor and the inter-bank 7-day repo rate(DR007),studies the dependence of the two on policy interest rates,and finds that DR007 is more suitable as the target interest rate of the interest rate corridor.Using an EGARCH model with mean equations to analyze the impact of policy operations on DR007 and Shibor,the study find that overnight interest rate increases of SLF will lead to higher market interest rates,and heavier market short-term interest rates volatilities.7-day SLF interest rate raising will also guides the upward interest rate,but it helps to reduce the 7-day inter-bank mortgage repo rate.The central bank interest rate corridor regulation is more effective in controlling short-term market interest rate fluctuations.Conclusions,recommendations and research prospects are given in the last part of the paper.The main conclusions of this paper are: first pilot and post-promotion are the main experiences of China's interest rate corridor mechanism construction.In the process of policy transformation,we must pay attention to the role of quantitative policy tools and price-based policy tools.It is very important for the central bank to set the width of corridors.The corridor width can be operated as policy tools.Expanding the scope of SLFcollateral should call more risk.There are some suggestions for improving the interest rate corridor mechanism in China: establishing China's policy interest rate anchor as soon as possible,improving the interest rate transmission mechanism,strengthening industry self-discipline and risk prevention,and steadily deepening the market-oriented reform of the exchange rate formation mechanism.The research prospects include expanding the study of the width of interest rate corridors,further expanding the New Keynesian model,and precisely regulating the interest rate corridors in China.The innovation of this paper is that it gets a deeper summary of the exploration and practice of China's interest rate corridor regulation mode.It is that the methods of strengthening the central bank communication and gradually building an "interest rate corridor mechanism" is in line with Chinese characteristics.It has explored and established en important lessons in building the interest rate corridor mechanism.Second,based on a simplified scenario of central bank open market operations and interest rate corridor regulation,the impact of tthem putting on market liquidity is analyzed by means of commercial banks and central bank balance sheets,and the equilibrium interest rate determination and optimal ceiling interest rate formula are derived.The third is to construct an extended new Keynesian model,which empirically analyzes the impact of interest rate levels and interest rate volatility in China's interest rate corridors.The shortcomings of this paper are:in the paper,the general equilibrium model of interest rate corridor width assumes that the legal reserve rate is zero,does not consider the statutory deposit reserve and differential reserve rate requirements of Chinese banks,and does not analyze the foreign departments that have a huge impact on China's money supply.The constructed empirical model does not fully reflect the essential characteristics of the nonlinearity of interest rate changes,and does not answer the question of whether or not to set up a medium-term interest rate corridor.