Research On Policy Mechanism Of Interest Rate Corridor And China Applied

In recent years,there have been sharp fluctuations in short-term interest rates in China's financial markets,which have challenged the implementation of monetary policy and financial stability,and are also not conducive to the process of interest rate liberalization.After the financial crisis,the “interest rate corridor” gradually became a new trend of monetary policy,and the central bank of China gradually introduced a similar mechanism to implement monetary policy.However,China's financial market is not yet fully mature.So,can interest rate corridors play an effective role in China? How should China design an effective "interest rate corridor" system? In addition,China has not yet achieved monetary policy transition,and Chinese monetary policy has a quantity-based intermediate target.Introducing a quantity instrument in the quantity-based monetary policy system,how should China's central bank use the interest rate corridor to guide the inter-bank offered rate and implement monetary policy?In order to answer the above questions,this article will focus on the effectiveness,institutional arrangements and policy implementation of the interest rate corridor.Technical route taken in this article: partial equilibrium analysis ?general equilibrium analysis ?statistical analysis and international experience induction.The problem that this article attempts to analyze: how the interest rate corridor manages the fluctuation of the inter-bank offered rate;how the interest rate corridor guides the formation of the inter-bank offered rate;how should the central bank use the interest rate corridor for macro management;what problems still exist in China's interest rate corridor;how should China's interest rate corridor be reformed and improved;what is the Chinese model of the interest rate corridor.The research of this article is based on theoretical analysis.Firstly,the partial equilibrium model of money market and the general equilibrium model of macroeconomics are used to study the policy mechanism of interest rate corridor.Then,we use statistical analysis methods to find out the problems existing in the implementation of China's interest rate corridor,and draw on the international experience to propose a cracking plan.Finally,the policy mechanism and the cracking plan are integrated to form the execution mode of China's interest rate corridor.First,this article constructs a partial equilibrium model to analyzes how the interest rate corridor controls the fluctuation of the inter-bank offered rate.Theoretical analysis found that: if there was no interest rate corridor,there will still be a corridor for the inter-bank offered rate fluctuations.The ceiling of the corridor is the cost of liquidating long-term asset,that is the opportunity cost of the borrowing-bank;the floor of the corridor is the credit risk premium,which is the risk premium belonging to the lendingbank.After the introduction of the interest rate corridor,interest rates of the lending and deposit facilities,which respectively replace the cost of liquidating long-term asset and the credit risk premium by lower cost for banks,control the inter-bank offered rate in a corridor range.However,when the actual cost of using the interest rate corridor exceeds the interest rates of the lending and deposit facilities,the inter-bank offered rate may break through the upper and lower bounds of the corridor.This is just like some country's experience,which have implemented the interest rate corridors.Second,this article set up a three-phase model of the interbank market,which provides a theoretical analysis framework for analyzing open market operations and interest rate corridors.The theoretical analysis shows that,both the open market operation and the interest rate corridor can regulate the inter-bank offered rate,but the interest rate corridor is better than the open market operation for stabilizing the inter-bank offered rate.The impact of open market operations on the inter-bank offered rate depends on whether open market operations are expected,and unanticipated open market operations that are inconsistent with fundamentals can cause unusual fluctuations in the inter-bank offered rate.Both the expected and unanticipated regulation by interest rate corridor can play a role in stabilizing the inter-bank offered rate.Nonetheless,an interest rate corridor with strict mortgage requirements will reduce the effect of the policy,and the mortgage premium will cause the inter-bank offered rate to break through the ceiling of interest rate corridor.Third,this article constructs a general equilibrium model,which provides a theoretical analysis framework for analyzing how the interest rate corridor coordinates the monetary needs of the real economy and the virtual economy.Theoretical analysis found that the monetary demand laws of the real economy and the virtual economy are different,and their respective dominant total monetary demand curve have different inclination directions.If the central bank supplies a stable amount of money to the banking system through open market operations,commercial banks tend to allocate more money to financial assets,which in turn creates a “upside-down” problem that is positively correlated between money supply and bond yields.So,the monetary demand of virtual economic dominates the total demand of the money,and its curve slopes to the upper right.However,interest rate corridors can increase the money supply by reducing the cost of capital.As the cost of capital declines,commercial banks can gain more income from investing in the real economy,prompting them to shift more money from the financial market to the physical sector,thereby promoting the decline in bond yields and changing the “upside-down”.So,the monetary demand of real economic dominates the total demand of the money,and its curve slopes to the lower right.Moreover,by controlling the cost of capital,the interest rate corridor can also guide bond yields to fluctuate within a certain range.As can be seen from the above analysis,the interest rate corridor is a monetary policy tool that is “stand by and useless”,but can guide short-term interest rates.Since the official introduction in January 2016,the interest rate corridor has played a role in reducing the fluctuation of Inter-bank offered rate.However,by analyzing the current status of China's interest rate corridor implementation,this article finds the following outstanding problems: there are still conflicts between the interest rate corridor and the monetary policy intermediary target;it is difficult to guide the formation of inter-bank offered rate;the three-term SLF interest rate is not coordinated and so on.By analyzing the international implementation experience,we find that each country has its own unique interest rate corridor model,such as: Canada's simple model,European complex model,Britain's "two-stage" model,New Zealand's transformation model and the US revision model.Moreover,by drawing on these international models,this article proposes some solutions to the above problems: introducing policy interest rates,creating a multi-level central bank interest rate framework,and combining different term SLFs.Finally,this article will recommend the Chinese execution model of the interest rate corridor,by applying the conclusions of the above analysis,which include the analysis of the interest rate corridor policy mechanism and solving the problems in the implementation of China's interest rate corridor by the international experience.The execution mode is mainly composed of two parts: the setting and operation of the interest rate corridor.Where,how to operate is mainly based on policy mechanism analysis,and how to set it based on international experience and China's reality.It is expected that this artical will provide theoretical guidance and practical assistance for the People's Bank of China to effectively implement,reform and improve the interest rate corridor.