Study On The Impact Of Interest Rate Corridor Width On Short-term Market Interest Rate Volatility

In early 2013,China's central bank set up a new type of monetary policy tools-standing borrowing facilities,which means that the interest rate corridor mechanism as a new type of monetary policy tools began to play a role.At present,the interest rate marketization requires the central bank to have effective interest rate control methods.However,there are many difficulties in relying on open market operations to stabilize interest rates under China's economic environment and institutional arrangement.Interest rate corridor is a good alternative mode.In the interest rate corridor model,the central bank does not need to frequently use the open market operation to adjust the liquidity of the market.It is usually necessary to adjust the interest rate corridor upper and lower limits to stabilize the market interest rate expectations.This not only simplifies the interest rate control process of the central bank,but also reduced the cost of regulation.As early as the last century,western countries such as Germany,Canada and Singapore began to use the interest rate corridor mechanism instead of open market operations to regulate market interest rates.Relatively speaking,China's interest rate corridor mechanism started late,with a perfect interest rate corridor upper and lower interest rates only three years' time,so far the development is not perfect,and compared with other countries or regions that adopted the interest rate corridor mechanism earlier,the interest rate corridor mechanism of our country is still at the initial stage.Interest rate corridor regulation mechanism is a new regulation paradigm that can autornatically stabilize the fluctuation of money market interest rate.In this paper,we mainly study the influence of interest rate corridor width on the volatility of short-term market interest rate from three aspects:theoretical analysis,statistical analysis and empirical analysis.The first part introduces the research background,the significance,the domestic and foreign research literature review,the research content,the research innovation and the insufficiency.From the implementation of the interest rate corridor mechanism,the China's central bank twice adjust the interest rate corridor width,compared with other countries or regions that have established a perfect interest rate corridor mechanism,the width of interest rate corridor is still wide in our country and needs further adjustment.The second part is the theoretical analysis of the impact of interest rate corridor width on short-term market interest rate volatility.Firstly,by analyzing the characteristics of the short-term market,the paper compares the open market operation as the traditional monetary policy tool and the interest rate corridor mechanism as a new monetary policy tool to regulate the short-term market interest rate.It analyzes the interest rate corridor mechanism to control the short-term market interest rate better than open market operation,and then on the basis of further analysis of interest rate corridor width on short-term market interest rate volatility impact.The third part is descriptive statistics of the domestic and foreign interest rate corridor mechanism.This part analyzes the historical data of interest rate corridor mechanism in euro zone,the United States,Canada and China.First,this part analyzes the influence of interest rate corridor width on short-term market interest rate volatility on the basis of the trend of the interest rate corridor width of each country,and compares the China's interest rate corridor width with the other three countries.Then,through the description of the statistics of GARCH Model's volatility sequence,this part longitudinally compares the statistics characteristics of short-term market interest rates volatility in euro zone,the United States,Canada and China under different interest rate corridor width.The fourth part is empirical analysis.Empirical analysis uses the impulse response function analysis.This part analyzes the pulse response function graph and comes to a conclusion on the influence of interest rate corridor width on the short-term market interest rate volatility.The fifth part is a summary and recommendations.In conclusion,the narrower the interest rate corridor width is,the smaller the short-term market interest rate volatility is.Then,the reality limitations of the conclusions will be described.Finally,combined with the China's current economic background,the paper will make a few suggestions for the future China's Interest rate corridor width adjustment.There are two main innovations of the paper:First,this paper specifically studies the influence of interest rate corridor width on the short-term market interest rate volatility.Existing research concentrates on how does the interest rate corridor affect short-term market interest rate,while few researches specifically studies the influence of interest rate corridor width on short-term market interest rate volatility.Also,because of the interest rate corridor started late in China,the existing research rarely involves the study of China's interest rate corridor.The paper not only has a research on the interest rate corridor mechanism in several foreign countries and regions,but also analyzes and compares the China's interest rate corridor mechanism.Second,the paper applies a combination of descriptive statistics and empirical analysis.The existing research mainly focused on the theoretical research of the interest rate corridor mechanism in foreign countries,few researches apply other methods.Although the paper innovatively applies a combination of descriptive statistics and empirical analysis,there is still insufficient for improvement in many respects due to the limited capacity of the author and limited conditions.First,since the foreign interest rate corridor data are mainly from foreign Web sites,it is difficult to find,so only selecting four countries and regions as samples,and the interest rate corridor width of each country or region changes not very frequently,which results in the inadequate sample size.The follow-up study will be complemented by collecting more comprehensive data for empirical research.Second,although the paper has come to the same conclusion from three level,namely,the narrower the interest rate corridor width does,the smaller the short-term market interest rate volatility is,but this paper does not specifically study whether the short-term market interest rate volatility will reduce,or basically remain unchanged after reducing to a certain level,or be even more intense volatility with interest rate corridor width continuing to reduce.The paper only focuses on the general interest rate corridor width currently used by several countries,within a reasonable range.