The Macro Conduction Effects Of US. Quantitative Easing On China Term Structure Of Interest Rates

In2007, a serious of the subprime crisis outbreak in the United States, thegrowth of U.S. economic began to slow down. In order to ease the crisis, the FederalReserve began lowering interest rates, expanding the balance sheet and other bailoutmeans to stimulate the economy, but they found that these bailouts means cannotmake the economic recovery and improve the employment pressures. Therefore, theUnited States began to change conversion, and used the unconventional quantitativeeasing monetary policy (Quantitative Easing, referred to as QE) four times to injectliquidity into the financial markets, and stimulate the economic recovery. But withthe economic and trade becoming globalization and liberalization, the degree ofinterdependence between the various countries begin to increase. Monetary policyimplemented by the United States not only affect its domestic macroeconomicsituation through the interest rate channel, the trade channel, asset price channel, thecredit channel and any other channels, but also affect other country’s economies,especially emerging market countries through the macro-conduction effects ofmonetary policy. More importantly, a lot of dollars generated by the implementationof the Fed’s quantitative easing policy flow into our bond market in various ways, itled the independence and the implementation’s effect of monetary policy have agreater impact and influence. And the term structure of interest rates as the mainmacroeconomic variables, which contains a wealth of economic information, itsfluctuations is also an important manifestation of financial market operations andmonetary policy implementation. Therefore, we only understand the macroconduction effects of US. Quantitative Easing on China term structure of interestrates truly; we could propose appropriate policy to avoid the risk of quantitative easing in the U.S.In this paper, on the basis of the background that the United States implementquantitative easing monetary policy, we do the theoretical study of the policytransmission mechanism within the United States as well as macro-conduction effectin the international arena firstly, and get a theoretical basis of the macro-conductioneffects from U.S. quantitative easing monetary policy to China’s term structure ofinterest rates. Then we use a static fitting method, NS model to measure the termstructure of interest rates accurately, and after that we use the vector auto regression(VAR) methods to do the empirical analysis of the macro-conduction effects fromU.S. quantitative easing to the term structure of interest rates. Our conclusions showthat in our two bond markets, U.S. quantitative easing monetary policy have asignificant upward impact on long-term factors, and a significant downward impactfor short-term. Because our bond market’s system is not perfect, the ability to digestthe impact is weak, the Impact affect the stability of the bond market seriously.Finally, we summarize the macro-conduction effect, and put forward somecorresponding policy recommendations to provide some theoretical basis for thepolicy authorities.