Understanding Chinese Bond Yields and Their Role in Monetary Policy

43 Pages Posted: 8 Oct 2011

See all articles by Nathan Porter

Nathan Porter

affiliation not provided to SSRN

Nuno Cassola

University of Milan Bicocca - CefES; University of Lisbon - CEMAPRE

Date Written: September 2011

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: Bond markets, Bonds, China, Interest rate structures, Monetary policy

Suggested Citation

Porter, Nathan and Cassola, Nuno, Understanding Chinese Bond Yields and Their Role in Monetary Policy (September 2011). IMF Working Paper No. 11/225, Available at SSRN: https://ssrn.com/abstract=1940811

Nathan Porter (Contact Author)

affiliation not provided to SSRN ( email )

Nuno Cassola

University of Milan Bicocca - CefES ( email )

Milan
Italy

University of Lisbon - CEMAPRE ( email )

Lisbon
Portugal

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