| The inter-bank money market is the main place for most financial institutions to meet their liquidity requirements. The most commonly used interest rate in this market includes SHIBOR, CHIBOR and the repo rates, which are representative of the market interest rate. Briefly, Collateral Repo refers to the behavior that bond owners with money demands to borrow money using their bonds as pledge. In the contractual time in the future, they return the contracted money to get their bonds back. This business is an effective way for money owners and money demanders to match their desire, which provides the market with enough liquidity.According to famous interest rate determination theories, especially the IS-LM theory, interest rate is determined by the saving-investing balance, money supplying-demanding balance and the level of income altogether. This paper tend to focus on the inter-bank collateral repo rates (shortened as the repo rates in the following paragraphs) to accomplish two main purposes:the first is to find out what macro and micro variables in China are the determinants of the repo rate and how and how much they will influence the rate level; the second is to study whether there exists correlations between repo rates and other commonly used rates like SHIBOR and the yield of asset-management products.To accomplish these two purposes, I first study the development and current state of the China’s bond market and the collateral repurchase in detail. Then, combining theories and reality together, I use the monthly data from January 2005 to December 2013 of specific macro and micro economic variables to run some linear regressions. After finding out the determinants in statistical significance, I build proper VAR model to analyze how these variables influent the repo rate in detail. In this part, impulse response method and variance decomposition method are used. Finally, the paper study the correlation between repo rates, SHIBOR and the yields using Granger Causality Test. |
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