Research On Interest Rate Transmission Mechanism Under The Price Type Monetary Policy Framework

The transmission mechanism of monetary policy is an important segment which affects the implementation effect of monetary policy.The effectiveness of the transmission mechanism has a vital impact on the effect of the central bank regulating the real economy.With the rapid development of China’s economy,the economic volume and the financial market are becoming larger and larger,and there has been more and more financial instruments.So the relationship between numeric type intermediate target and inflation and total output has weakened significantly.Scholars gradually believe that price type intermediate target is a better indicator of monetary policy.China’s monetary policy framework has begun to transform from numeric type to price type.Under the framework of price type monetary policy,interest rate will be the main intermediate target.The policy interest rate of the central bank is transmitted to the Treasury bond interest rate and other market interest rates through the benchmark interest rate of the money market,and then affects the real economy.Therefore,it is very important to study the interest rate transmission mechanism under the new situation.The domestic research on interest rate transmission focuses on the impact of China’s special regulatory measures on the transmission mechanism including depositloan ratio,benchmark interest rate of deposit and loan,loan quantity and so on.There is less literature focuses on the factors affecting China’s interest rate transmission efficiency after the deregulation,especially the transmission from Shanghai interbank offered rate(SHIBOR)to Treasury bond interest rate and the transmission from Treasury bond interest rate to loan interest rate.Therefore,we establish a general equilibrium model of interest rate transmission including government departments,Treasury bond market and residents’ consumption and loan,then deduce the transmission mechanism of policy interest rate through Treasury bond interest rate to loan interest rate,corporate bond interest rate and time deposit interest rate.Moreover,we make a more in-depth mechanism research and empirical test on the transmission of policy interest rate to Treasury bond interest rate through SHIBOR,and the transmission of Treasury bond interest rate to loan interest rate,corporate bond interest rate and time deposit interest rate.Finally,we supplement the possible impact of the introduction of legal digital currency on the interest rate transmission mechanism.The general equilibrium model of interest rate transmission we established obtains the result that policy interest rate is positively transmitted to loan interest rate,corporate bond interest rate and time deposit interest rate through Treasury bond interest rate.Through the further analysis of the transmission efficiency expression,it is found that the better the liquidity of Treasury bond,the lower the deposit reserve ratio and the more the number of market participants,the higher the transmission efficiency of policy interest rate to loan interest rate,corporate bond interest rate and time deposit interest rate.In the part of the transmission from policy interest rate to Treasury bond interest rate through SHIBOR,using OLS model and SVAR model for empirical research,it is found that although the transmission from SHIBOR to Treasury bond interest rate in China has been effective,it is still weaker than the United States.The insufficient impact of China’s benchmark interest rate on the expected interest rate of short-term Treasury bond is an important reason why the impact of China’s benchmark interest rate on the interest rate of medium and long-term Treasury bond is insufficient.Moreover,the small volume and the segmentation of the Treasury bond market,the unconscionable term structure of Treasury bond,the unreasonable structure of investors,the unmatched rights and obligations of market makers which leads to its weak function,and the insufficient ability of the central bank to manage the expectation of short-term interest rates are also the factors causing this result.In the part of the transmission from Treasury bond interest rate to loan interest rate,we expound the "alternative channel"and "expected rate of return channel" and put forward the "liquidity channel" of the transmission,then establish a theoretical model for the three channels.By using OLS model and cointegration test,it is found in the empirical test on the hypotheses from the theoretical model that the transmission of China’s Treasury bond interest rate to loan interest rate is seriously blocked which results from the impact of the benchmark loan interest rate,China’s high threshold and low efficiency of issuing credit bonds which leads to poor substitutability of credit bonds and loans,the incomplete competition and the imperfect credit rating and loan guarantee system of the banking industry leading commercial banks to crowd out high-risk customers,as well as the bond investment of commercial banks which is mainly to hold medium and long-term bonds to maturity resulting in the insensitivity of the liquidity ratio of commercial banks to Treasury bond interest rate.In the part of the transmission of Treasury bond interest rate to corporate debt interest rate and time deposit interest rate,through the empirical study using OLS model,it is found that the transmission of Treasury bond interest rate to corporate debt interest rate is effective,but there is a blockage in the transmission to time deposit interest rate which is due to the long-term regulation of deposit and loan interest rate,the insufficient liquidity of China’s time deposits and the high level of legal deposit reserve ratio for a long time.In addition,combined with the reality of the implementation of legal digital currency in China,we expand.the general equilibrium model of interest rate transmission by establishing the interest rate equilibrium model under the assumption that legal digital currency completely replaces paper money and is equivalent to deposit reserve.The research shows that the legal digital currency interest rate can be transmitted to the loan interest rate and deposit interest rate through the bond interest rate,or directly to the deposit interest rate.The better the liquidity of the bond,the higher the transmission efficiency of the legal digital currency interest rate to the loan interest rate and deposit interest rate.The interest rate of legal digital currency can effectively strengthen the role of the lower limit of interest rate corridor in interest rate transmission,and is conducive to the implementation of negative interest rate policy.If there is no interest on legal digital currency,it is necessary to impose restrictions on the withdrawal or transfer of legal digital currency in order to effectively implement the negative interest rate policy.In summary,combined with the needs of the transformation of China’s monetary policy framework and based on the research of existing literature,we deeply study the interest rate transmission mechanism under the price type monetary policy framework with a systematic and step-by-step research.We obtain some theoretical innovation and empirical conclusions,then put forward relevant policy suggestions.It provides a theoretical basis for the implementation of price type monetary policy after deregulation and the introduction of legal digital currency,and a new idea and framework for the subsequent research on interest rate transmission under the framework of price type monetary policy.