Post by Nuno Cassola on Oct 12, 2011 8:32:23 GMT 4
Understanding Chinese Bond Yields and Their Role in Monetary Policy
Nathan Porter / Nuno Cassola
European Central Bank (ECB)
September 2011
IMF Working Paper No. 11/225
Abstract:
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.
papers.ssrn.com/sol3/Delivery.cfm/wp11225.pdf?abstractid=1940811&mirid=1
Nathan Porter / Nuno Cassola
European Central Bank (ECB)
September 2011
IMF Working Paper No. 11/225
Abstract:
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.
papers.ssrn.com/sol3/Delivery.cfm/wp11225.pdf?abstractid=1940811&mirid=1