A Study On The Effectiveness Of Interest Rate Transmission Mechanism Of China's Monetary Policy

Interest rate channel is one of the main transmission channels of monetary policy in western monetary and financial theory.After more than 20 years of interest rate marketization reform,the degree of interest rate marketization on China has been greatly enhanced though the dual-track interest rate system has not been completely eliminated from China yet.At the same time,China's monetary policy framework has gradually changed from quantitative regulation to price regulation over time.Interest rate indicators have been playing an important role when the People's Bank of China formulates and implements monetary policy.In addition,the bench mark construction of the Interbank Offer Rate in Shanghai(Shibor)has made great progress since it has been in operation starting from 2007 due to an increase in its ability to transmit monetary policy signals.Based on the above,it is of great theory and pratical significance to study the effectiveness of interest rate transmission mechanism of monetary policy in China.This paper has first sorted out both references from our nation and foreign references related to interest rate transmission mechanism of monetary policy;this paper has also explained the theory of interest rate transmission mechanism.Then,based on the research conclusions and relevant theories of scholars from our nation and abroad,the process of interest rate transmission in China is divided into three stages: from policy tools to benchmark interest rate,from benchmark interest rate to financial market interest rate,from financial market interest rate to real economy transmission.After introducing the variables and data selected in each stage in turn,this paper begins to do empirical research.Seasonal adjustment and logarithm are used to process the data.The Unit Root Test,Johansen Cointegration Test,and the Granger Casuality Test are used to judge whether the data is stable and whether a SVAR model can be established.After the model is established,impulse function and variance decomposition are used to study the dynamic relationship between variables.This paper draws the following empirical conclusions: one is that the transmission links of monetary policy instruments to Shibor and Shibor in financial markets are effective,but the link of Market Interest Rate to Real Economy is insufficient in terms of effectiveness.Another conclusion is that Shibor has different transmission effcts among different financial sub-markets.Shibor's transmission to interbank market is better than that to credit market,and the transmission effect of interest rate to money market is better than that to capital market.Finally,this paper makes an analysis of the empirical conclusions: the good transmission effect of the first stage is mainly due to the reduction of financial market system constraints,the enhancement of Shibor's ability to transmit central bank policy signals,and the gradual deepening of interest rate marketization reform;the main obstacles in the second stage are the existence of the double-track interest system and the segmentation of financial market;the main obstacle in the third stage is that the size of financing provided by enterprises,residents,and finance for the real economy is not sensitive to the change of interest rates.With regards to the above empirical conclusions and analysis,this paper proposes some suggestions: further deepen the marketization reform of interest rates,continuously improve China's financial market and strengthen the links between sub-markets,improve the interest rate sensitivity of enterprises,residents,and other micro-subjects,strengthen the guidance of public expectations,improve the transparency of monetary policy,and make financial market participants act in line with the central bank's policy objectives.The innovations of this paper are as follows--one is that the interest rate transmission mechanism is divided into three stages: monetary policy tool?benchmark interest rate,benchmark interest rate?financial market interest rate,and financial market interest rate?real economy.The effectiveness of each stage and the blocking factors of each link are analyzed separately,and the research content is relatively complete.The other innovation is that from considering the characteristics of open market operation of the central bank in recent years,this paper chooses the 7-day reverse repurchase rate of treasury bonds as the representative of price instruments in the first stage,which makes the variables more representative and more in line with reality.