Research On The Jump Dynamics Of SHIBOR

The establishment of the benchmark interest rate is a critical step for interest rate liberalization. Since2007, the central bank brought out shibor at the reference of libor, the doubt that if shibor had worked well as the benchmark interest rate has attracted scholar’s attention. In this paper, we used the autoregressive jump intensity GARCH model to examine the short-term, mid-term and long-term shibor, of which we chose the two-week, six-month and one-year shibor as our subjects, and compare them in terms of the sensitivity of the jump shocks. The empirical study shews that the two-week shibor performs best as being the most sensitive shibor about the jump shocks, besides, the percentage of volatility caused by jumps has accounted almost40%in the conditional variance. And six-month shibor has a poor sensitivity about jump shock as well as one-year shibor. Also, the empirical study shows that all three shibor has the phenomenon of volatility clustering, and the asymmetry in volatility caused by good and bad news, and the emerge of jumps can easy the asymmetry. Besides, the consideration of jumps can influence the conditional skewness and kurtosis in a better way. In this paper, we also examined if the change of the monetary policy has been the primary cause of the jump shocks by exploring a parameterization that allows an monetary policy change dummy variable, yet the limit of the sample constrained the model, we can’t tell if the change of the monetary policy has been the primary cause of the jump shocks. The likelihood tests over the autoregressive setting and the dummy variable in feedback function to differentiate the good news and the bad news show that the settings are both necessary.By using out-of-sample-prediction, we concluded that the autoregressive setting for the jump intensity is superior. And we compared the two-week chibor and two-week shibor by using the model, we concluded that two-week-shibor has a better sensitivity about the jump shocks than two-week chibor.This paper suggests the mid-term and long-term shibor has a much poorer prediction and sensitivity in jump shocks, we analyzed the reasons and summarized. They are the scarcity of inter-bank borrowing, especially the mid-term and the long-term categories, and the limit of the quoting abilities of the bank, the lack of representation of the quoting banks, and the government control over the financial market and the interest rate.In this paper, we suggested some measures to mend the poor performance of the mid-term and long-term shibor. The policy suggestions are adding some non-bank financial institution as the quoting institutions, loosing the interest rate restrictions, and the central bank should encourage the market more to use shibor as basis, besides, the propaganda of shibor can be increased to raise its publicity in the public.