A Study On The Impact Of Interest Rate Corridor On Short-Term Market Interest Rate Fluctuation

Interest rate corridor is a new kind of monetary policy frameworks,and it started from the 1990s.Compared with the opening market operations,it has many advantages such as low cost,high transparency,convenient operation,etc.So this control mode is adopted by more and more countries.With the rapid development of China's financial industry,and the establishment of the multi-level capital market,it is imperative to transformate themonetary policy mode,as the same time,interest rate corridor has become the main direction of the future Chinese monetary policy.This paper examines the impact of interest rate corridors on short-term market interest with the combination of theoretical and empirical analysis.First of all,on the basis of previous studies,this paper systematically introduces the meaning of interest rate corridor control mode,and the mechanism of interest rate corridor combined with the monetary tools of interest rates transmission mechanism.At the same time,this paper starts from the perspective of money demand and money supply,explaining the effect of interest rate corridor model on short-term market interest rate fluctuation with the optimal objective function.In addition this paper reviewed the interest rate corridor practical experience of Canada,the Eurozone,the United States and other regions of,coming to the conclusion of the fluctuations about market interest rates with interest rate corridor.Based on the analysis of interest rate corridor theory and the reference of foreign experience,this paper expounds that the interest rate corridor can reduce the short-term market interest rate fluctuations in the regulatory role.In order to verify the correctness of this theoretical hypothesis,this paper compares the market interest rates in the UK,Europe and the United States which have adopted interest rate corridor policy with China who has not adopted the policy by establishing the GARCH model,and compares the volatility of market interest rates before and after the implementation of interest rate corridors in the UK.The data illustrates the interest rate corridor can reduce the short-term market interest rate fluctuations.Finally this paper puts forward the construction that China faces many challenges to establish the interest rate corridor on the basis of the empirical results,and put forward some corresponding suggestions,for example,the goverment should develop the mature and stable financial markets,reform the deposit reserve system and so on.