Research On The Effect Of Monetary Policy Based On Term Structure Of Interest Rates Of Bonds Market

The main monetary policy in China is quantitative monetary policy, rather thanthe price type tools of monetary policy, it is influenced by the factor of China’sinterest rate marketization level. In1990s it happened in the western developedcountries that quantity type instrument gradually changed into price type. Thismeasure can effectively reduce the fluctuation of macro economy and maintain arelatively low inflation rate. This measure is very successful. As the process ofChina’s marketization of interest rate, the interest rate will gradually replace thequantitive monetary policy tools to become the main tools of monetary policy inChina.The term structure of interest rates described different level of interest ratesunder different maturities. It can reflect the price changes and development trend ofmonetary market. The curve parameters can also be used to study the relationshipbetween it and the macro economic variables. Therefore, research on the effect ofmonetary policy based on term structure of interest rates of bonds market in Chinawill have important theoretical and practical significance. This study focused on thefollowing aspects:Firstly, this paper reviews the theory of term structure of interest rates and thebasic theory of monetary policy, and theoretically analyzed the relationship betweenthe term structure of interest rates and the macro economy. It proved that the existenceof correlation between the term structure of interest rates and the macro economy.Then the essay analyzed the status of China’s bond market, and reviewed theimplementation of monetary policy in China. Because90%of the bond markettransaction in China is complicated in the inter-bank bond market, and in thesetransactions national debt accounted for the vast majority. So we choose theinter-bank bond market data to fit the curve.Third, we use the Nelson-Siegel model to fit the term structure of interest rate curve. The results showed that, Nelson-Siegel model can accurately fit the termstructure of interest rates in China. The curve parameters can be used for the empiricalanalysis.Next we selected macroeconomic variables and the curve parameter to makeempirical research. The results showed that, China’s monetary policy can affect theterm structure of interest rates and then affect macroeconomic variables. The finalchange of macroeconomic variables is consistent with the theoretical analysis.Finally, we summarize the conclusions of each chapter. We put forward somesuggestions on improving the trading system of China’s bond market and themarketization of interest rates and the formulation of monetary policy.