The Influence Of Monetary Policy Instruments On Money Market Interest Rate

At present,China's monetary policy framework is gradually changing from quantitative to price-oriented,and interest rate regulation has become more and more important.Meanwhile,the channel of currency delivery in funds outstanding for foreign exchange has been greatly weakened.Money that the central bank actively put into circulation becomes an important source of liquidity.This not only improves the central bank's monetary policy initiative,but also puts forward higher requirements for the central bank's ability to manage liquidity and regulate interest rates in the money market.The central bank established SLF(Standing Lending Facility)to deal with unexpected liquidity shocks of banks.Subsequently,the central bank proposed to explore the role of SLF as the upper limit of interest rate corridor and normalized the application of SLF.Furthermore,the central bank has established the normal operation mechanism of reverse repo to meet the daily liquidity needs.In order to regulate the interest rate of money market flexibly and efficiently,the People's Bank of China and many scholars have proposed to explore the interest rate regulation mode of "interest rate corridor+OMO" in China.In this context,it is of practical significance to test the effect of SLF and reverse repo and put forward policy recommendations.The order of this paper is from theory,practice,demonstration,to conclusion and suggestions.This paper expounds the mechanism of SLF and reverse repo to regulate the interest rate of money market.The application of SLF and reverse repo in China is summarized.Empirical test shows whether the "quantity" and "price" functions of SLF and reverse repo have a significant impact on money market interest rates.After obtaining the effect characteristics of SLF and reverse repurchase "price" and"quantity",this paper further considers how to use SLF and reverse repo.Finally,policy recommendations are put forward.In the theoretical part,firstly,the theoretical basis of SLF and reverse repo affecting money market interest rate is "liquidity effect" and "expectation effect".Then the mechanism of SLF and reverse repo affecting money market interest rate is explained in terms of "price" and "quantity" respectively.In the practical part,the article first points out that DR007 is the most representative money market interest rate in China,and explains the reasons.Then combing with DR007,the application of SLF and reverse repurchase is sorted out from the aspects of "price"(interest rate)and"quantity"(total supply,net supply).Finally,the effect of SLF and reverse repo normalization is shown intuitively with graphics.Overall,after the normalization of SLF and reverse repo,DR007 runs smoothly in the upper and lower bounds of SLF and reverse repo interest rate,and its fluctuation is much lower than before.However,after August 2016,under the background of the change of policy objectives such as de-leveraging,stabilizing exchange rate and stabilizing economy,DR007 frequently breaks through the SLF interest rate and reverse repo interest rate.To a certain extent,SLF and reverse repo lose the reliable control of money market interest rate.The empirical part combines the net supply and interest rate,constructing VAR model to examine the effect of SLF and reverse repurchase from aspects of "price" and"quantity".From the empirical results,SLF and reverse repo tools both show the characteristics of "price" strong "quantity" weak.Based on this feature,this paper further considers how to use these two tools in different situations.Policy recommendations are put forward finally.There are three main conclusions in this paper:First,the influence of SLF interest rate is strong,but the influence of net supply is weak;Second,the impact of the reverse repo rate is very strong,but the impact of the net supply is very weak.Third,SLF and reverse repo can be used in various ways.This paper holds that the inaccessibility of SLF quantity and the lag of publishing information limit the role of SLF.The central bank's inadequate expected management may limit reverse repo to play a more "quantitative" role.In view of the above conclusions,this paper puts forward two corresponding policy recommendations:First,improve SLF quantity and information availability;Second,enhance the anticipated management of reverse repo.