The Macro Explanation To The Change Of The Interest Rate Term Structure In China

Interest rate is the most important factor that could influence the stability of the bond market. Until now, there are many mature theories and models for the research of the term structure of interest rate, including the analysis based on stochastic process. However there are few analysis on the term structure of interest rate from the macro perspective. In China, the situation is worse since there are fewer relevant papers in this field. This article will analyze the macro factor which affect the term structure of interest rate based on some popular foreign research methods.The introduction of this paper points out the implication and background of the study on the interest rate term structure , and then introduces relevant theories home and abroad . From the second part, it turns to empirical study, which constitutes three chapters: the estimation of the interest rate term structure, the preparation of macro variables' data generated from the original data and the model parameters estimation. In detail, this paper adopts the methodology of fitting the discount function by three times polynomial spines and employs principal component analysis to figure out the three potential factors influencing the dynamics of the term structure in the second chapter; uses HP Filter to estimate the output gap of GDP and the adaptive expectation model for inflation expectation in the third chapter. In the forth chapter, this paper tries to figure out the relationship between the potential factors and macro variables through a VAR model, and focuses on the extent to which the potential factors are affected by macro variables, thereby illustrating the effects of macro variables on the dynamics of the term structure indirectly. Furthermore, a simple state space model is constructed in this paper, and Kalman Filter method is applied to estimate the model parameters which stand for the sensitivity of long-end interest rate to inflation expectation and the output gap of GDP. Both models have reached such a conclusion that the inflation expectation has a more significant effect on the term structure of interest rate, and much more significant than economic cycle does. From this point of view, in the process of making policies, policy-makers should make proper expectation for inflation to lead the economy to a good result.