What Drives China's Interbank Market?

 
Author/Editor: Porter, Nathaniel John ; Xu, TengTeng
 
Publication Date: September 01, 2009
 
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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: Interest rates in China comprise a mix of both market determined interest rates (interbank rates and bond yields), and regulated interest rates (lending and deposit rates), reflecting China's gradual process of interest rate liberalization. We argue, using a theoretical model and empirical analysis, that the regulation of key retail interest rates diminishes the ability of the market determined rates to act as independent price signals, or as benchmarks for use in asset pricing and monetary policy. Further interest rate liberalization should, therefore, strengthen the information conveyed by movements in interest rates, allowing for the better pricing of risk and capital.
 
Series: Working Paper No. 09/189
Subject(s): Asset prices | Bank regulations | Banking sector | Bond markets | Capital markets | Central bank policy | China, People's Republic of | Economic models | Interest rates | Interest rates on deposits | Interest rates on loans | Liquidity | Monetary policy | Pricing policy

Author's Keyword(s): Interbank market | monetary policy | GARCH | China
 
English
Publication Date: September 01, 2009
Format: Paper
Stock No: WPIEA2009189 Pages: 30
Price:
US$18.00 (Academic Rate:
US$18.00 )
 
 
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