Effect Of Monetary Policy On Term Structure Of Treasury Bonds Interest Rate

Term structure of interest rates, as the name suggests, describe the relationship between interest rates and maturity. Recent years, the study of term structure of interest rates has been a hot topic because of its important roles in macroeconomic. Generally speaking, term structure of interest rates has two aspect of meanings. Term structure of interest rates play an important role in asset pricing. There are lots of macroeconomic information in yield curve, the study of term structure of interest rates is good for the stability of macroeconomic.The main purpose of this paper is the effect of monetary policy to term structure of interest rates.The first chapter introduce the background and significance of topic, methods of this paper.The second chapter is the literature review. It has two parts:the review of term structure of interest rates and the review of relationship between term structure of interest rates and monetary policy.The third chapter is the first part of empirical. It introduces bootstrap method, spline method and Nelson-Siegel model. Then this paper use NS model to fit term structure of interest rates.The forth chapter is the second of empirical. There are three parts in this chapter. First, this chapter described the impact of monetary policy on the term structure of interest rates in theory. Second, it selects right method to study the impact of monetary policy instruments on term structure of interest rates. Third, it uses VAR model to study the impact of monetary policy on the term structure of interest rates.The fifth chapter is conclusions and recommendations.According to the empirical of this paper, this paper has six conclusions.(1) The empirical shows that NS model is suitable for our bond market.(2) According to the result of event study methods, we know that deposit-reservation has a close relationship with yield curve. The increasing of deposit-reservation can move the yield curve upward.(3) According to the result of regression, we know that open market operation has a significant effect on yield curve. Positive monetary policy can make the yield curve flat.(4) The results of Johansen Cointegration test and Granger causality test show that there are a stable relationship between M2 and the term structure of interest rates.(5) The results of impulse response function tell us that the four factors of interest rate term structure have a certain reaction to the positive impact of M2. And the reaction of short-term interest rates is more than long-term interest rates.(6) According to the result of variance decomposition, the contribution of M2 to the four factors of interest rate term structure is different. The contribution of M2 to short-term interest rate is the biggest. This means that M2 has a bigger impact on short-term interest rate.Compared with other paper, this paper has its own characteristic:First, this paper has a significant meaning on the background of interest rate liberalization.Second, this paper uses the event study method to discuss the impact of reserve requirements on yield curve. This method is more scientific than other studies.The last, this paper not only discuss the three factors of NS model, but also discuss the short-term interest rate. This is different from other study.