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Understanding Chinese Bond Yields and their Role in Monetary Policy

  • Nathan Porter
  • Nuno Cassola
Registered author(s):

    China''s financial prices are informative enough for the PBC to introduce a monetary policy framework centered around interest rates. While bond yields are not fully efficient?reflecting regulation, liquidity, and segmentation?we find they contain considerable information about the state of the economy as well as evidence of an emerging transmission channel: changes in PBC rates influence the structure of Treasury, financial, and corporate bond yield curves, which are then associated with changes in growth and inflation. Coporate spreads are also a leading indicator of growth and inflation. While further liberalization will strengthen both efficiency and transmission, several necessary elements to move towards indirect monetary policy are already in place.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/225.

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    Length: 42
    Date of creation: 01 Sep 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/225
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    1. Alexander W. Hoffmaister & Jorge Roldos & Anita Tuladhar, 2010. "Yield Curve Dynamics and Spillovers in Central and Eastern European Countries," IMF Working Papers 10/51, International Monetary Fund.
    2. Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2004. "The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach," NBER Working Papers 10616, National Bureau of Economic Research, Inc.
    3. Diebold, Francis X. & Li, Canlin, 2003. "Forecasting the term structure of government bond yields," CFS Working Paper Series 2004/09, Center for Financial Studies (CFS).
    4. International Monetary Fund, 2009. "What Drives China's Interbank Market?," IMF Working Papers 09/189, International Monetary Fund.
    5. International Monetary Fund, 2009. "Interest Rate Liberalization in China," IMF Working Papers 09/171, International Monetary Fund.
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