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Open Market Operation Effectiveness in China

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  • Zheng Qiao
  • Yangshu Liu

Abstract

This paper examines the effectiveness of target rate guidance in open market operation by the central bank in China (PBOC). We find that target rate change in open market operation is effective in adjusting the short-term Treasury rates. The target rate changing direction is more effective than the target rate changing level. There is no significant asymmetry in the effectiveness between the target rate increase and target rate decrease. We also document that the effectiveness of the target rate is conditional on liquidity operation of the same direction, especially when they both aim to loosen the monetary policy. Furthermore, consecutive operations with higher intensity appear to be more effective in adjusting the market interest rate.

Suggested Citation

  • Zheng Qiao & Yangshu Liu, 2017. "Open Market Operation Effectiveness in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(8), pages 1706-1719, August.
    • Handle: RePEc:mes:emfitr:v:53:y:2017:i:8:p:1706-1719
    DOI: 10.1080/1540496X.2016.1216839
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    References listed on IDEAS

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    Cited by:

    1. Ashima Goyal & Deepak Kumar Agarwal, 2017. "Monetary transmission in India: Working of price and quantum channels," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2017-017, Indira Gandhi Institute of Development Research, Mumbai, India.
    2. Jingya Li & Ming-Hua Liu, 2019. "Interest rate liberalization and pass-through of monetary policy rate to bank lending rates in China," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-19, December.
    3. Goyal, Ashima & Agarwal, Deepak Kumar, 2020. "Policy transmission in Indian money markets: The role of liquidity," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).

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