An Effective Research Of Central Bank Bills On Term Structure

The term structure is a curve which is made up by all the points in a moment of different terms of interest rate. It is also play an important role in financial assets pricing. In the field of monetary policy, term structure can not only provide enormous information to monetary authority, but can be regarded as a feedback to evaluate the effectiveness of monetary policies carried out before. Thus, the term structure of interest rates is a promising area as to monetary authority. With the deepening of interest rate liberalization in our country, the central bank put more emphasis to implement monetary policies by using the interest rate transmission mechanism and it is of great importance to have a deep research on the effectiveness of all the monetary policy tools to market rates and then provide way to central bank on the innovation and reforming of monetary policy. For this purpose, we intend to analysis the effectiveness of the central bank bills issuing to the term structure of interest rates.Firstly, we use the Dynamic Nelson-Sigel Model to fit the interbank bond market rate, and we can get three factors as samples which can represent the whole term structure and we also collect the actual issuance of central bank bill as another sample. Next we use econometric models of VAR, granger causality tests, and impulse response to have a deep research of the relationship between these statistics and get the final consequence.Next, according to the consequence, we find that the issuing of central bank bill have significant effect on the level factor, but have less effect on another two factors. It means that this monetary policy tool can have a significant influence on the whole level of market rate, but cannot change the shape of the curve. The result told us that our central bank can regulate market interest rates by exchanging its own bills and the central bank bill can be used as a important tool to adopt prudent monetary policy in the future.Finally, we give out our recommendations, integrating theory with practice, on the central bank bill itself, monetary policy and the further market reform.