چکیده:
How should we think about the determination of interest rates in China after interest rate liberalization? Would effective deposit rates, lending rates, and bond yields move higher or lower? We argue that interest rates in a liberalized environment would need to be anchored by monetary policy. To achieve price and output (or employment) stabilization, the policy rate should be set close to China’s equilibrium or natural rate. We sketch three preliminary approaches to estimation of the natural rate. Based on this analysis, we argue that interest rates on large deposits and short-term money-market rates would likely move higher following liberalization. The effect on effective lending rates is somewhat ambiguous, as the contestability of the banking sector and the competition from the bond markets are likely to increase. We leave the determination of the curvature of the yield curve to future research.
خلاصه ماشینی:
The implementation of this program requires a serious reassessment of the monetary policy framework in China by shifting the focus from bank credit targets to interest rates and developing fixed-yield markets, which will facilitate the extraction of a completely risk-free yield curve.
Deposit rates with different maturities (Refer to page image) Source: CEIC Banks' internal interest rates for regulating their investment activity budgets and transfer pricing are still based on benchmark deposit rates rather than market rates such as the repo rate (Jiang 2012).
Therefore, one of the fundamental measures of the Chinese central bank toward designing and implementing a monetary policy framework based on market prices, within the overall framework of interest rate liberalization, is to regulate benchmark policy interest rates within the range of equilibrium interest rates as much as possible.
Garnier and Wilhelmsen (2005) 4, Manrique and Marqués (2004) 5, Mesonnier and Renne (2007) 6, among other researchers, used this same technique and method to estimate the natural interest rate of various countries' economies.
However, the main relationship of the Laubach and Williams (2003) calibration method is as follows: (Refer to page image) where *r is the natural real interest rate, IES 7 is the intertemporal elasticity of substitution coefficient, g is the potential output growth rate, and O is the time preference rate.
For example, based on the results obtained from this research, it has been stated that after the implementation of the interest rate liberalization policy, short-term interest rates in the bond market will likely increase, but no investigation regarding the shape, size, and curvature of the economic yield curve has been provided in this regard.
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