The Empirical Research On Chinese Bond’s Interest Rate Term Structure And Its Predictive Ability Of Inflation

In this paper, we based on the traditional theory of the term structure, used sample data of interest-bearing government bonds of the Shanghai Stock Exchange, fitted the interest rate term structure with the cubic B-spline function model and studied its dynamic changes, and then based on Mishkin inflation equation, we empirical analyzed whether the term structure of interest rates can forecast future inflation rate to some extent.First, the paper made a comparative analysis of four different models of interest rate term structure:the polynomial spline model, the B-spline function model, Nelson-Siegel model and Svensson model. The results show that the B-spline function model is stable and reliable, and is the most suitable model of bond interest rate term structure.Second, the paper based on the cubic B-spline function, used data of27interest-bearing government bonds in November18,2011of the Shanghai Stock Exchange, obtained Chinese bond’s interest rate term structure by estimating the model parameters, and constructed out of the spot rate curve and the forward rate curve that implicit in the cross-section of the Shanghai Stock Exchange bond prices. The results show that the spot rate curves and forward rate curves are very stable and smooth, spot rate curve is tilted up before the18-year, and flattening after18-year, a normal curve shape inclined to the upper right basically. Short-term interest rates are low, long-term interest rates are high, This shows that the liquidity preference theory of the interest rate term structure on the government bond market in China is effective, and verifies the liquidity preference theory in the traditional theory of the interest rate term structure. In addition, we also estimated the dynamic changes of bond’s interest rate term structure of the Shanghai Stock Exchange, the result shows that the interest rate term structure moves in parallel over time, the interest rate term structure is basically an upward curve as the deadline increases in each point time, further explains Liquidity preference theory is effective in China’s bond market. Third, the paper calculated monthly data of inflation rate by the consumer price index CPI from December2006to November2011, and calculated monthly data of interest rate term structure by data of interest-bearing government bonds in the Shanghai Stock Exchange, then based on the Mishkin inflation equation, empirical studied that whether the interest rate term structure can forecast the inflation rate using time series analysis methods. The empirical results show that, the nominal spreads of six-month and three-month can predict the future changes in the inflation rate, the nominal spreads of2-year and six-month also contain inflation information, can predict the future changes in inflation to a certain extent, but nominal spreads between other period can not predict future changes in inflation. Overall, the interest rate term structure of the Shanghai Stock Exchange has a certain ability to forecast inflation, but the effect is not significant.Finally, on the basis of the above analysis, the paper Summarized the tectonic situation of interest rate term structure and the effect of its forecast ability to inflation rate. Then proposed to accelerate market-oriented interest rate reform continuously, regularly publish our interest rate term structure curve when conditions are ripe, publish the expected inflation rate and the spreads between long-term and short-term, gradually include it in the economic leading indicators, and make China’s monetary policy-making more timely and accurate.