Monetary Policy Transmission: The Linkages between Repurchase Operations and Market Interest Rates

摘要

With the deepening of interest rate liberalization and financial reform in China, the Central Bank frequently uses repurchase and reverse repurchase to flexibly adjust market interest rates. Under the new monetary policy framework, investigating the linkages between central bank repurchase operations and major market interest rates provides effective reference for the selection of the future benchmark interest rate and improvement of monetary policies. Based on five-year data from 2013 to 2017, this study empirically analyzes the open market reverse Repo rate, short-term liquidity operation (SLO) interest rate, Shanghai Interbank Offered Rate (SHIBOR), and interbank pledged repo rate. Using the DCC-GARCH model, this study obtains the linkage effects between the central bank's reverse repurchase interest rate, SHIBOR, and interbank pledged repo rate. We find that the defects of the interest rate transmission mechanism and market expectations explain the reason why there are stronger linkage between central bank's repurchase operations and the SHIBOR.