The Research On The Choice Of Benchmark Interest Rate In China’s Monetary Market

The benchmark interest rate of a country is the core and leading rate of interest rate market which is doing an important job in the development of monetary market. While the benchmark interest rate in China’s monetary market remains at the cultivation and development stage. The interest rate liberation has been started from1996, after ten years of implementation and extension, notably activated the trading in monetary and capital market. But due to the level of the overall marketing circumstance, the formation mechanism of benchmark interest rate is still a problem, which seriously limits the positive aspects of benchmark interest rate. Base on this, this article is trying to find the right interest rate in the monetary market to be the benchmark interest rate by certain empirical tests.According to the basic principles of benchmark interest rate, substitution interest rates are studied by ADF test, Cointegration test, GRANGER test, Stepwise regression and GARCH model to compare their relevance, sensitivity and term structure. Finally, this article pointed out that SHIBOR is a better choice as the benchmark interest rate of money market in China and give some advices on how to promote SHIBOR to be the benchmark interest rate in China’s monetary market as soon as possible.