E-mail alert  |  Contact  
Search:       Go  
Background  |   Sponsoring institutions  |   Editorial board   |   Advisory board   |   Associate editors
Call for papers  |   Submission guidelines  |   Editorial process
Current issue  |   Past issues  |  
March 2016 issue
List of authors
 
Fueki, Fukunaga, Ichiue, Shirota
Gupta
Kril, Leiser, Spivak
Popov
Porter, Xu
Black, Rosen
Calza, Zaghini
Arciero, Heijmans, Heuver, Massarenti, Picillo, Vacirca
IJCB Home   Read the journal   Past issue
Past issues
2017
 
December
September
June
March
February
2016
 
December
September
June
March
2015
 
December
September
June
March
January
2014
 
December
September
June
March
2013
 
December
September
June
March
January
2012
 
December
September
June
March
January
2011
 
December
September
June
March
2010
 
December
September
June
March
2009
 
December
September
June
March
2008
 
December
September
June
March
2007
 
December
September
June
March
2006
 
December
September
June
March
2005
 
December
September
May

Money-Market Rates and Retail Interest Regulation in China: The Disconnect between Interbank and Retail Credit Conditions

by Nathan Porter and TengTeng Xu
International Monetary Fund

Abstract

Interest rates in China are composed of a mix of both market-determined interest rates (interbank rates and bond yields) and regulated interest rates (retail lending and deposit rates), reflecting China’s gradual process of interest rate liberalization. This paper investigates the main drivers of China’s interbank rates by developing a stylized theoretical model of China’s interbank market and estimating an EGARCH model for seven-day interbank repo rates. Our empirical findings suggest that movements in administered interest rates (part of the People’s Bank of China’s monetary policy toolkit) are important determinants of market-determined interbank rates, in both levels and volatility. The announcement effects of reserve requirement changes also influence interbank rates, as well as liquidity injections from open-market operations in recent years. Our results indicate that the regulation of key retail interest rates influences the behavior of market-determined interbank rates, which may have limited their independence as price signals. Further deposit rate liberalization should allow short-term interbank rates to play a more effective role as the primary indirect monetary policy tool.

JEL Codes: E43, E52, E58, and C22.

 
Full article (PDF, 56 pages, 1295 kb)