Interest Rate Liberalization And Policy Rate Regulation

The interest rate channel is one of the most important monetary policy transmission channel.Most of the early studies believes that the credit channel is the main monetary policy transmission channel in China.However,with the steady advancement of interest rate liberalization,the monetary authority in China has gradually released the upper and lower limits of the deposit and loan interest rates commercial banks faced with,the formation mechanism of money market benchmark interest rate is becoming more and more mature,the quantitative monetary policy regulation mode is gradually replaced by the price-based way,thus improving the efficiency of interest rate transmission process in China.On the one hand,the indirect financing market,represented by credit loan financing,is still the most important component of China's social financing market,which means that the credit market is still the main platform of China's monetary policy regulation,thus making the transmission efficiency of monetary policy to commercial bank interest rates an important determinant of the whole interest rate transmission process.On the other hand,with the advancement of interest rate liberalization,the intermediary role of money market interest rate between monetary policy tools and bank interest rates,represented by the inter-bank market interest rates,has been increasingly enhanced,which has made it an important factor influencing the efficiency of monetary policy transmission.Therefore,this paper has integrated monetary policy tools,the inter-bank market interest rates and commercial bank interest rates into the same research framework to study the efficiency of the monetary policy transmission to commercial bank interest rates and the mediating effect of inter-bank market interest rates in this process from theoretical and empirical perspectives.In this paper,we established a profit maximization equation on the basis of the balance sheet model of commercial bank and analyzed the mechanism of the transmission of monetary policy to commercial bank's deposit and loan rate,as well as the mediation effects of inter-bank market interest rates in this process.On this basis,we studies the different characteristics of the monetary policy regulation process in different stages of the interest rate liberalization process,especially the relationship among monetary tools,inter-bank market interest rates and commercial bank interest rates(deposit rate and loan rate).In the empirical part,this paper has analyzed the efficiency of monetary policy transmission,represented by the benchmark lending rate and borrowing rate,the statutory deposit reserve ratio and the central bank(inverse)repo rate,to commercial bank deposit and lending rates,using the system GMM methods.This paper also test the mediation effect of inter-bank market rates,represented by shibor and inter-bank pledged repo rate,using the sobel and bootstrap mediation effect testing methods.The empirical analysis is based on annual data of 111 commercial banks in China in 2003-2018.We have also divided the research interval into two stages to analysis the characteristics differences of different stage,as well as dividing the bank samples into different groups to do the group study.The research result shows that,in general,the transmission of monetary policy changes to commercial bank interest rates is effective.Changes in monetary policy can impact on commercial bank interest rates not only directly,but also through the mediation effect of inter-bank interest rates.It is worth noting that there exists significant differences in different stages of the interest rate liberalization process.Finally,the analysis of micro-operation characteristics of the sample banks shows that the three variables we studied—off-balance-sheet items,financial assets holding and inter-bank items—have shown different influence on the interest rate transmission process.