A Study On The Influence Of Monetary Policy On The Yield Curve Of National Debt

This paper analyzes the effects of monetary policy on the yield curve of government bonds. This topic is of significance to current Chinese economy in two ways:the liberalization of market rate and the transformation of central bank’s monetary policy target from money supply to interest rate.Based on related theories, empirical works as well as China’s own characteristics, this paper chooses to model the daily government bond trading data in inter-bank market with interest rate term structure, get the descriptive parameters and further analyze them with the effects of monetary policy tools, e.g. reserve rate, rate for deposit and loan, central bank note.The empirical part divide the time horizon into tightening cycle and expanding cycle and uses the Nelson-Siegel model to get three time series of long-term factor, slope and curvature. The results testify three hypotheses:each tool’s effect has the same direction but different level across two cycles; all the tools will change the slope of the yield curve; the effects differ between quantity/price type and market/administrative type.Further analysis says that reserve rate as quantity type tool has little and reverse effect on long-term factor while rate for deposit and loan as administrative and price type tool has big and positive effect on it. Bank note has combined effects:with large change of quantity and small change of rate, it has the effect like reserve rate while with small change of quantity and large change of rate, it has the effect like rate for deposit and loan. The results indicate much room for development with the bank note tool and less frequency in the change of reserve rate. And the role of rate for deposit and loan is still important and cannot be replaced by others at the moment.