An Empirical Study Of SHIBOR As Reference Interest Rate

In the construction of every country’s financial markets, they will experience the liberalization of interest rate. The liberalization reform of interest rate of our country started in1980s and go on with an ordered, sound pace. According to the experience of developed countries, that successful reform commonly started with the disappearing of interest rate control and ended with a perfect market-oriented interest rate system, which must be have a benchmark interest rate. This interest rate help with the pricing of financial products and conduct of monetary policy.SHIBOR (Shanghai Inter-bank Offered Rate) is launched on Jan4,2007by our central bank. But participants of financial markets always lack knowledge of SHIBOR’s importance and functions. Author suggests that, in order to establish SHIBOR as our money market benchmark, firstly we need to figure out the relationship of liberalization of interest rate and benchmark interest rate, and then check characteristic of SHIBOR as a benchmark rate using qualitative and quantitative methods.This paper contains six chapters. Chapter1is about the introduction of entire essay. Chapter2provide a definition and general principle in the selection of benchmark interest rate. Chapter3devotes to figure out the relationship of liberalization of interest rate and benchmark interest rate and analyze our situation. Chapter4proves the correctness of selecting SHBOR as a benchmark interest rate in a qualitative way. Author select daily data of SHIBOR, REPO, inter-bank offered rate, index300and exchange rate of RMB for USD to check whether SHBOR can meet the basic criteria as a benchmark rate, by correlation coefficient, Granger method and IRF model and so on. In addition, EGARCH model has been used to prove the existence of SHIBOR’s heterosedasticity. Chapter5supports the conclusion of chapter4in a quantitative way. In the last chapter, author make a conclusion about this whole paper and propose some suggestion.Author suggests, after seven years’operation, SHIBOR already has a strong influence to the market. But due to short period of the development of the financial markets in China, there are too many mechanisms and operating environment to improve. In other others, SHIBOR still has enough space to improve its characteristic as a benchmark rate, thereby enhancing our resources allocative efficiency and moneytary policy’s validity.