Understanding Chinese Bond Yields and their Role in Monetary Policy
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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. 2011/225
Subject:
Arbitrage Bonds Commodities Financial institutions Financial markets Financial services Inflation Prices Securities markets Yield curve
English
Publication Date:
September 1, 2011
ISBN/ISSN:
9781463904937/1018-5941
Stock No:
WPIEA2011225
Pages:
42
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