Analysis Of The Influencing Factors Of The Inter-bank Bond Market Liquidity

The bond market is the place where bonds are issued and traded,and is an important part of the financial market.A mature bond market forms the basis of a country’s financial system.The liquidity of assets refers to the difficulty of converting assets into cash.The liquidity of the capital market will affect the investing and financing behavior of participants in the market.Therefore.when liquidity problems occur,it will affect the stability of the overall financial market.The liquidity of the bond market has always been the focus of the academic world and industry.In this case,it is necessary to research the liquidity of China’s bond market and its influencing factors.Traditional econometric models,such as VAR model,are analyzed under the assumption that there is a long-term stable relationship between economic variables with the parameters such as the model coefficient and the variance of random disturbance remain unchanged.However,in reality the economic structure is not static.The time-varying parameter structural vector autoregressive with stochastic volatility(TVP-SV-VAR)model first proposed by Primiceri in this paper assumes that the parameters in the model vary over time,so it can effectively capture the relationship within economic variables and their time-varying characteristics.In the aspect of parameter estimation of TVP-SV-VAR model,this paper studies the state estimation methods based on smoothing state and smoothing disturbance respectively,and the simulation analysis shows that the two methods can be effectively used for state vector estimation.Because there are many parameters in TVP-SV-VAR model and the posterior distribution calculation of which is pretty complex,Markov chain Monte Carlo(MCMC)method is used to generate samples for parameter estimation in the model.This paper elaborates the process of sampling each parameter matrix under MCMC method,and verifies the effectiveness of the MCMC method for parameter estimation through simulation exercises.At the same time,as a comparison,the same simulated data is used to estimate the parameters of the time-varying parameter vector autoregressive(TVP-VAR)model with constant volatility to illustrate the importance of stochastic volatility in the model.Through analyzing the characteristics of China’s bond market and monetary transmission mechanism,this thesis selects turnover rate and Hui-Heubel liquidity ratio as the representative indicators of inter-bank bond market liquidity and selects open market operation(net money supply)and inter-bank pledged repo rate(R007)as the influencing factors of inter-bank bond market liquidity.This paper conducts empirical analysis by constructing TVP-SV-VAR model,and the sample period is from 2005 to 2022.The model results show that there is a positive simultaneous relationship between the net money supply and the turnover rate,while the simultaneous relationship between R007 and the turnover rate is negative.The impulse responses show that in most of the sample period,a positive net money supply shock can cause the increase of turnover rate,while a positive R007 shock will cause the decrease of turnover rate and the increase of Hui-Heubel liquidity ratio.This shows that the increase of the net money supply can increase the trading activity of the bond market,while the increase of the inter-bank pledged repo rate will have a negative effect on the liquidity of the bond market.The impulse responses also show that the influence on Hui-Heubel liquidity ratio after a R007 shock lasts longer than a net money supply shock,indicating that the price instruments of monetary policy are more suitable for medium and long-term regulation than the quantitative instruments.In combination with other empirical results,this paper suggests that the monetary authorities can combine money supply with interest rate guidance to effectively regulate the liquidity of the bond market.