Money Market Interest Rate Changes Differences And Common Factors Research

China's money market was built in the 1980s, relatively late compared with the stock market. Under the system constraints, China's money market experienced limited market size, lack of liquidity, non-market-oriented interest rates and etc at the beginning. As China's financial markets gradually open to the world and develop in depth, the complexity and risk in the financial markets continue to increase, corresponding to the implementation of monetary policy also have higher requirements. In this context, as short-term capital financing market and important tool for China monetary policy, the money market becomes more prominent.This article chooses two of most representative ones in China money market: interbank borrowing market and interbank collateral repo market. Article develops from two perspectives, theidiosyncratic variation among money market interest rates and common factors that drive the co movement of interest rate. Common factors include monetary policy, capital markets and the macroeconomic factors.From idiosyncratic variation research,paper found China's two major money markets show some degree of segmentation, and after 2004 this segmentation increased, partly owing to the product concentration and stock market impact. In contrast, Interbank borrowing market's short term and long term interest rate changes is obviously inconsistent. Its market segmentation is more serious than pledge-repo market. On the other hand, liquidity risk, credit riskand different reaction of external shock by the two markets are important causes of interest rates spread between interbank borrowing market and interbank collateral repo market.Analysis of common factors, we use the VAR method. Monetary policy as a whole in the short, medium and long term can explainthe majority of interest rates' variation. Macro-variableis the second important factor only in the long run. Capital markets (stock market) impact particular maturity especially in the short turn. By contrast, pledge-repo market rates are more affected by the capital market factors.At the same time the above three factors have different impact on China's money market interest rate term structure.Monetary policy and macro-factors in the long-run are the principal factors for parallel interest rate changes. Stock market impact was the main influence factor for slopes of term structure. Monetary policy and stock market impact in the long term have great impact on curvature factor of money market interest rates.These research results, market segmentation in the interbank market in particular, suggest that government need to improve the product structure in the future. Judging from the transmission of monetary policy, overall money market interest rates' effect on capital markets and macro-economic is not significant. While from the perspective of interest rate risk, stock market financing needs transmitrisk to the money market, increasing the volatility of interest rates.