The Research Of The Effectiveness Of China’s Open Market Operations From2003to2011

Open market operations are the most commonly used tool of monetary policy. Because ofthe slow progress of the interest rate marketization and the weak foundation of the bond marketin China, we have questioned the effectiveness of open market operations. Which transmissionchannel does China’s open market operations effectiveness play a part? How result do openmarket operations write off the RMB counterpart of foreign exchange reserves? In the financialmarkets price regulation course, bonds and central bank bills, which is the better one? With thesequestions, this paper studies the effectiveness of open market operations in China from2003to2011, and answers these questions.The paper first summarizes the theory of open market operations to enable readers tounderstand the source of the theory of open market operations, transmission channels as well asforeign exchange sterilized theory. Second, the introduction of the definition，the mechanism，theconditions of open market operations make us know more clearly. Through the description of thepresent situation in China, as well as learning from open market operations abroad, this paperpresents the view of our operational objective should change from money supply to interest rates.Dynamic empirical analysis of the effectiveness of China’s open market operations is the focusof this article. Through the use of econometric models to analyze the dynamic relationshipbetween economic variables, this article concludes as follows. In the channels of China’s openmarket operations, monetary channel plays a part. In the effectiveness of the operating tool tocontrol the market interest rates, the national debt is better than the central bank bills. Meanwhile,the central bank bills can effectively write off the RMB counterpart of foreign exchange reserves.Finally, the relevant policy recommendations for the above analysis are given as follows: toimprove the market interest rates,to strengthen the basis of the bond market, to develop the bondmarkets, to improve the central bank independence, to improve unreasonable settlement system.