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WHAT MOVES BOND YIELDS IN CHINA?

Longzhen Fan and Anders Johansson ()
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Longzhen Fan: School of Management, Fudan University

No 2009-9, Working Paper Series from Stockholm School of Economics, China Economic Research Center

Abstract: This paper analyzes the joint dynamic processes of macroeconomic and monetary variables and bond yields in China. We show that macroeconomic variables as well as monetary policy variables have a significant impact on two factors that capture the variation in yields. An increase in the inflation rate and economic growth result in a rise in the yield curve. Similarly, an increase in the money supply causes a rise in the yield curve, albeit with a delayed effect. Finally, when official rates are raised, the long yield shows signs of a delayed decline. Overall, the long yield is more sensitive to most changes in macroeconomic and monetary variables. These results differ from an earlier study on bond yields by Ang and Piazzesi (2003), who show that the U.S. short-term rate is more sensitive to changes in macroeconomic variables. Possible explanations for the difference include certain unique structural features in the domestic financial system and the way monetary policy is conducted in China.

Keywords: China; yield curve; macroeconomic factors; monetary policy (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-tra
Date: 2009-06-01
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