Understanding Chinese Bond Yields and their Role in Monetary Policy

Author/Editor:

Nathan Porter ; Nuno Cassola

Publication Date:

September 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 11/225

Subject:

English

Publication Date:

September 1, 2011

ISBN/ISSN:

9781463904937/1018-5941

Stock No:

WPIEA2011225

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

42

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