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Bond market opening, monetary policy, and systemic financial risks – An empirical study based on the TVP-SV-VAR model

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  • Wei-Ying Ping
  • Yu-Wen Hu
  • Liang-Qing Luo

Abstract

While the opening of the bond market provides strong support for high-level financial opening, it also accelerates the accumulation of systemic financial risks, thereby affecting the high-quality development of China’s finance. Based on data from 2003 to 2024, this paper measures China’s bond market opening, monetary policy, and systemic financial risks, and employs a TVP-SV-VAR model to investigate the time-varying relationships among bond market opening, monetary policy, and systemic financial risks. The findings are as follows: (1) The impact of bond market opening on China’s systemic financial risks exhibits time-varying characteristics; (2) Contractionary monetary policy helps curb systemic financial risks, but this effect marginally diminishes when facing external structural shocks; (3) The improvement of interest rate transmission mechanisms and the transition toward price-based monetary policy can significantly enhance the sustainability of monetary policy’s regulatory role in systemic financial risks; (4) There exists a significant linkage effect between bond market opening and monetary policy, but this effect is subject to time-varying influences from the progress of domestic institutional reforms and cross-border capital anomalies.

Suggested Citation

  • Wei-Ying Ping & Yu-Wen Hu & Liang-Qing Luo, 2025. "Bond market opening, monetary policy, and systemic financial risks – An empirical study based on the TVP-SV-VAR model," PLOS ONE, Public Library of Science, vol. 20(11), pages 1-30, November.
    • Handle: RePEc:plo:pone00:0335859
    DOI: 10.1371/journal.pone.0335859
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