Research On Market Interest Rate Channel Of Monetary Policy Transmission Mechanism

With the advance of China’s interest rate marketization reform, interest rate, as the main price instrument of monetary policy regulation tools, is playing an increasingly important role in China’s monetary policy transmission process. Based on the traditional theory, this paper had simplified the complex monetary policy interest rate transmission channels into the following chain: open market operations of the central bankâ†'fluctuation of the inter-bank market interest rateâ†'impact on investment and consumption activitiesâ†'change on the output level and price level.After selecting M1, SHIBOR, PMI and CPI as the respective proxy variables, this paper had constructed a SVAR model to investigate the effectiveness of this transmission channel. The empirical results indicated that there are some dynamic interactions among the variables. In the short term, this channel can transmit signals in accordance with the expected direction of monetary policy, which means this transmission channel had been connected. The internal transmission from money supply to real interest rate is very effective, which is rapid and rather significant. The external transmission from real interest rate to PMI and CPI is less effective, which is also rapid but not so significant. In the long term, there is a stable co-integration relationship among the four variables. However, there is also an obstacle on the way the interest rate transmitting the policy signals to the real economy, which would reduce the regulatory capacity of the monetary policy.In order to find out the reasons why the transmission channel is accessible but not smooth, the following study first pay attention to the key factor of this channel—SHIBOR. The benchmark test shows that SHIBOR can reflect the market supply and demand situation of funds by trend analysis, but still cannot exactly reflect the capital price in the real trading market. Further study on the term structure of SHIBOR finds that the pure expectation theory is fail between the long-term and short-term interest rates, which imply that the relationship between different maturities SHIBOR interest rates may be much more complex. These problems would increase the transmission difficulty between the short-term and long-term interest rates.The external transmission channel between interest rate and real economy activities is also an important research object in this paper. Analysis results show that the enterprises and residents are not sensitive enough to the market interest rate, which would weaken the transmission efficiency. The index of entrepreneurs’ confidence and the indices of urban residents’ confidence on income and price level, which have reflected the enterprises’ and residents’ situations, are short of elasticity. And the impacts of market interest rate on these indices are small.In the final part, this paper has summarized the main problems existing in the market interest rate transmission channel, and put forward some relevant policy recommendations.