Understanding Chinese Bond Yields and their Role in Monetary Policy

Nathan Porter and Nuno Cassola

No 2011/225, IMF Working Papers from International Monetary Fund

Abstract: China's financial prices are informative enough for the PBC to introduce a monetary policy framework centered around interest rates. While bond yields are not fully efficient?reflecting regulation, liquidity, and segmentation?we find they contain considerable information about the state of the economy as well as evidence of an emerging transmission channel: changes in PBC rates influence the structure of Treasury, financial, and corporate bond yield curves, which are then associated with changes in growth and inflation. Coporate spreads are also a leading indicator of growth and inflation. While further liberalization will strengthen both efficiency and transmission, several necessary elements to move towards indirect monetary policy are already in place.

Keywords: WP; money market; yield curve factor; affine yield curve model; monetary policy; China; Bond Yields; Term Structure of Interest Rates; Treasury bond yield curves; Treasury Bond market; PBC paper market rate; arbitrage free; no-arbitrage factor; PBC bills market; banks bond yield curve; bond yield yield curve; market rate; Yield curve; Securities markets; Arbitrage; Inflation; Bonds; Europe (search for similar items in EconPapers)
Pages: 42
Date: 2011-09-01
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Citations: View citations in EconPapers (9)

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