| The interest rate is the core variable of economic and financial the fields. It’s the price of funds. It will reflect the relationship between supply and demand of funds in the market. Marketability interest rate is a necessary condition of a perfect socialist market economic system, is the key to strengthening our financial indirect control. It also helps to form an independent management mechanism of financial institutions. The steady advancement of the interest rate market cannot be separated from forming the term structure of interest rates in the bond market. The term structure of interest rates is the basis of pricing a variety of financial derivatives; it changes in response to market expectations of future interest rates. While we actively promote market-oriented reform of interest rates, a deep understanding of term structure of China’s bond market, helps to grasp the characteristics of China’s interest rates. Moreover, focus on the impact of macroeconomic factors to the term structure of interest rates will laid a solid foundation for the integration of the two separated markets and improve the efficiency of the bond market.This paper systematically reviews the interest rate term structure theory and empirical literature, screening models suitable for China’s bond market and finally chose the Nelson-Siegel-model-based state space model as the optimal model for fitting of the term structure of inter-bank market interest rates. By using Kalman filter method we estimated the three representative series of the entire interest rate curve:level, slope and curvature. The fitting results show that the Nelson-Siegel model was well fitted, suitable for the fitting of the term structure of interest rates in China, and three-factor can be a better reflection of the entire interest rate curve characteristics.Furthermore, we discussed the relationship of the three factors of the term structure of interest rates and macroeconomic factors. We divided a large number of macroeconomic variables into three categories:the level of the real economy, monetary policy and price level, and then we use principal component analysis to extract the first principal competent of each category. Then we established the structural vector autoregression (SVAR) model, absorbing three latent factors into the model, using the impulse response function and variance decomposition techniques to examine the impact of macroeconomic shocks on the term structure of interest rates. Finally we got following conclusions:(1) The level factor for interest rate term structure response to macroeconomic factors more strongly, the slope factor and the curvature factor are significantly weaker. Macroeconomic factors had a higher contribution rate on the variance of the level factor, the variance of the slope factor and the curvature factor, the contribution rate at about20-30%.(2) Price level factors has a significant and lasting impact on the level factor, is the most important factor leading to changes in long-term interest rates and has the highest contribution rate on variance of the level factor, the empirical results are basically consistent with the theory.(3) Expansion of the monetary policy will cause the expansion of long-term and short-term interest rate, but with a lag of two periods. The level of the real economy had a higher contribution rate on variance of the slope factor, while the price level has a weak influence on the slope factor.(4) Economic growth, expansionary monetary policy and inflation will increase the curvature of interest rate curve, but the responses caused by various macro factors are not significantly different. It means the curvature factor is not sensitive to changes in macroeconomic factors.Combined with existing research, we also present relevant policy recommendations. |
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