The Choice Of Benchmark Interest Rate In China’s Money Market And Its Empirical Test Of Effectiveness

As the essential of interest rate system,benchmark interest rate plays a important role in financial product pricing,financial innovation and monetary policy transmission.With the interest rate liberalization proceeding continuously,monetary policy in our country is in the process of transition from quantitative to price type.Interest rate as an important type of monetary policy tools price,gives positive impacts on our country’s financial system construction and economic development.To cultivate and determine a reasonable benchmark interest rate is conducive to the current monetary market reform and the implementation of monetary policy.As early as 1992,our country has established an interest rate system,which focus on benchmark interest rateand can be adjusted automatically.In the process of reform,our country also tried to cultivate several benchmark interest rates,such as China inter-bank offered rates(CHIBOR)Shanghai inter-bank offered rate(SHIBOR),Interbank pledge repo rate(REPO),etc..However,there is still no agreement on which interest rate is more suitable for the benchmark interest rate of China’s money market.From 2013,China began to explore the mechanism of interest rate corridor,aiming to reduce the volatility of the benchmark interest rate and to make its fluctuations within the scope of the interest rate corridor.At present,the interest rate corridor system is gradually approaching consummate,the scope is basically determined,As the core of the interest rate corridor,the benchmark interest rate is essential.The report from the people’s bank of China in 2016 showed high praise to the rate pledged by interest rate bonds among depository institutions in cultivating benchmark interest rate,which made the issue of benchmark interest rate selection came into focus of researchers once again.Benchmark interest rate is an important approach of the The people’s bank of China to regulate indirectly market and intermediate target.In order to make the interest rate corridor play a guiding role and government reach regulation goal,benchmark interest rate is necessary as an intermediate tool.Therefore choosing a reasonable benchmark interest rate is of great significance for the development of financial market in China.First of all,on the basis of literature reading,the definition of the benchmark interest rate and properties are analyzed and defined.Then,the papaer analyzes the current benchmark interest rate system,sum up the attempt in the benclunark interest rate to foster in China,contrast a year deposit interest rate,CHIBOR,REPO,the characteristics of SHIBOR and DR.And choosing REPO,SHIBOR and DR as the empirical targets to the next step of the test.n the empirical test,the correlation test,the stationarity test,the Granger causality test and the impulse response function are used to measure the marketability,controllability,correlation,stability and foundation of the three interest rate and different maturities..Through the result,it is found that SHIBOR performs well in terms of stability and controllability,and DR performs well in terms of marketability and fundamentals,but both have poor correlation with market indicators.According to the empirical test results,considering the late launch of DR,the attributes of risk-free interest rate and the overall direction of interest rate corridor construction,this paper believes that DR as the benchmark interest rate cultivation is feasible.However,as China is still at the exploratory stage of interest rate corridor mechanism and still needs to learn from relevant mature experience abroad,it continues to compare and summarize the characteristics of interest rate corridor and benchmark interest rate selection in Canada,Europe and the United States,and so on,which gives enlightenment the selection and cultivation of China’s benchmark interest rate,including choose short-term interest rate from the term length,such as overnight and 7-day term variety interest rate,select the actual transaction rate in the mode of interest rate,and take the benchmark interest rate as the operation target training,to further enhance the marketability and fundamental of the benchmark interest rate.Finally,according to the above analysis,relevant policy Suggestions are put forward from the aspects of financial market,monetary policy transmission and DR cultivation.It is suggested that China should establish a unified financial market,continue to promote the market-oriented reform of exchange rate,reduce the deposit reserve ratio,and accelerate the cultivation of DR,mainly from the aspects of enhancing the marketability of DR and expanding the range of DR benchmark pricing.In this paper,the comparative study of benchmark interest rate include DR,which is less involved in current study.The selection of time interval covers the latest time after the improvement of the interest rate corridor.Unfortunately,some data of DR are still not been published yet and there may be some more suitable econometric models for further analysis,thus some studies in this paper may be incomplete and rigorous.