An Analysis Of The Operational Validity Of SHIBOR As The Benchmark Interest Rate In The Marketization Of Interest Rate

It’s almost been 20 years since the launch of interest rate marketization, and one of the goals that the reform aimed at is to build a market interest rate system, which is concentrated on the benchmark rate. So long, the central bank has made great progress on the reform, and is now keeping on push the deeper revolution around the market.The dissertation started from the progress of interest rate marketization, and put emphasis on the key steps of the revolution and the importance of benchmark interest rate. In addition, the author made a brief introduction of the most-popular international benchmark interest rate, the Federal Funds Rate and LIBOR. Later, the thesis draw a sketch plan of the characteristics of the benchmark rate based on the former academic theory, and the characters include marketability,relevancy, conductibility and stability. Besides, the thesis makes an analysis of the a set of important interest rate, which are used to be considered as the benchmark rate before the launch of SHIBOR, and the set contains bond-repurchase rate, interbank offered rate, one-year deposit rate and one-year treasury rate. By listing the strengths and weaknesses of all the interest above, the thesis hold the opinion that none of them is suitable for being taken as the benchmark rate, since they are born imperfect and the markets they rely on are still immature.On 4th July 2007, Shanghai Interbank-Offered rate starts to provide information to the public, and SHIBOR has so long been taken as the benchmark rate for so many agencies. Now it’s been 9 years since the launch SHIBOR, although it has great impacts on the financial markets, the questions of whether it can take on the role of benchmark rate and or can price the financial derivatives in the right manner are still to be answered.Aimed at answering the questions above, the thesis conducts qualitative and quantitative analysis on SHIBOR. On the qualitative ground, the thesis tells how the SHIBOR is calculated, how it works, the interest term of SHIBOR and the big changes it brings to market. On the quantitative ground, the thesis applies GRANGER cause test to relationship among SHIBOR, IBOR and REPOR. Besides, the thesis conducts a test on the relevancy between macroeconomic indexes. In the end of the analysis, the thesis uses VAR model and impulse-response model to check out the stability of SHIBOR. The analysis concludes that SHIBOR is relatively stable against the impulse of macroeconomic variables, and the relationship among SHIBOR and other monetary market interest rates is obvious. However, the conduct power of SHIBOR over some term structure is not as stronger as that of IBOR or REPOR. Also, the relations between SHIBOR and the monetary policy index are not strong enough to support SHIBOR to be the benchmark rate. In the end, the thesis analyzes the obstacles of SHIBOR and the reasons that lie behind, and then it comes up with some suggestions to solve these problems. The thesis draws a conclusion that SHIBOR already carries some characteristics of benchmark interest rates, however it still needs to be sharpened. Under the circumstances of current Chinese financial markets, the central bank should not only improve the operating mechanism of SHBOR, but also learn from the European countries to build up a benchmark interest rate system, using repo rate and SHIBOR in the short term and treasury rate in the long term, and accelerate the progress of interest rate marketization.