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Time and frequency structure of causal correlation networks in the China bond market

Author

Listed:
  • Zhongxing Wang

    (School of Economics and Management, University of Chinese Academy of Sciences
    Research Center on Fictitious Economy and Data Sciences, Chinese Academy of Sciences
    Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences)

  • Yan Yan

    (School of Economics and Management, University of Chinese Academy of Sciences
    Research Center on Fictitious Economy and Data Sciences, Chinese Academy of Sciences
    Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences)

  • Xiaosong Chen

    (Institute of Theoretical Physics, Chinese Academy of Sciences
    School of Physical Sciences, University of Chinese Academy of Sciences)

Abstract

There are more than eight hundred interest rates published in the China bond market every day. Identifying the benchmark interest rates that have broad influences on most other interest rates is a major concern for economists. In this paper, a multi-variable Granger causality test is developed and applied to construct a directed network of interest rates, whose important nodes, regarded as key interest rates, are evaluated with CheiRank scores. The results indicate that repo rates are the benchmark of short-term rates, the central bank bill rates are in the core position of mid-term interest rates network, and treasury bond rates lead the long-term bond rates. The evolution of benchmark interest rates from 2008 to 2014 is also studied, and it is found that SHIBOR has generally become the benchmark interest rate in China. In the frequency domain we identify the properties of information flows between interest rates, and the result confirms the existence of market segmentation in the China bond market.

Suggested Citation

  • Zhongxing Wang & Yan Yan & Xiaosong Chen, 2017. "Time and frequency structure of causal correlation networks in the China bond market," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 90(7), pages 1-8, July.
    • Handle: RePEc:spr:eurphb:v:90:y:2017:i:7:d:10.1140_epjb_e2017-70049-5
    DOI: 10.1140/epjb/e2017-70049-5
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    References listed on IDEAS

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    1. John B. Taylor, 1999. "Introduction to "Monetary Policy Rules"," NBER Chapters, in: Monetary Policy Rules, pages 1-14, National Bureau of Economic Research, Inc.
    2. Mantegna,Rosario N. & Stanley,H. Eugene, 2007. "Introduction to Econophysics," Cambridge Books, Cambridge University Press, number 9780521039871.
    3. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
    4. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
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