China's Banking System Liquidity And The Relationship Between Inter-bank Market Bond Yields

The intermediate target of monetary policy of our country is the Money Supply. According to the Monetary Policy Report in the third quarter of 2006, our central bank Liquidity management refers to bank liquidity, and the central bank controls the credit by controlling bank liquidity first. Meanwhile, the central bank definites the bank liquidity as the deposits in the central bank of the commercial banks, Including statutory reserves and excess reserves, which shows that the operation target of the central bank is essentially bank reserves.The bank liquidity has an important impact on economics and finance. First, the changes of bank liquidity will affect of money market Interest rates, and then transfer to the long-term rates, and will ultimately affect the real economy variables such as investment and consumption. In addition, the changes of bank liquidity will affect the bank's credit capacity, thus affecting the total credit, and then the monetary liquidity and ultimately the whole economic system.At present, the researches of bank liquidity in China are mostly focused on the cause of the problem of excess liquidity and the policy suggests, and few researches are focused on the relationship between bank liquidity and bond rates.This paper is supposed to clarify the factors which influence the bank liquidity as well as the process of the changes of the bank liquidity. This paper will also study the relationship between the bank liquidity and R007, the relationship between R007 and the bond rate, which will help to test monetary policy effect and also the effectiveness of monetary policy transmission path. In addition, it will also help to predict the trend of bond rates.