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Monetary policy announcements and market interest rates’ response: Evidence from China

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  • Sun, Rongrong

Abstract

This paper examines the daily responses of market interest rates to three monetary policy announcements in China using the event-study approach. I find that the interest rate responses to announced changes in the regulated retail interest rate and the required reserve ratio are positive and significant at all maturities of interest rates but smaller at the long end of the yield curve. By contrast, market interest rates barely respond to the qualitative MPC announcements about the monetary policy stance. These findings are robust to alternative econometric methods that correct for potential bias arising from violations of the identification assumption. These findings suggest that the PBC should formulate its policy communication in a quantitative way.

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  • Sun, Rongrong, 2020. "Monetary policy announcements and market interest rates’ response: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 113(C).
  • Handle: RePEc:eee:jbfina:v:113:y:2020:i:c:s0378426620300303
    DOI: 10.1016/j.jbankfin.2020.105766
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    Cited by:

    1. Klingelhöfer, Jan & Sun, Rongrong, 2019. "Macroprudential policy, central banks and financial stability: Evidence from China," Journal of International Money and Finance, Elsevier, vol. 93(C), pages 19-41.
    2. Sun, Rongrong, 2018. "Requiem for the Interest-Rate Controls in China," MPRA Paper 87700, University Library of Munich, Germany.

    More about this item

    Keywords

    Transmission of monetary policy; Policy announcement effects; Event study; China;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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