Asymmetric Adjustment of Interest Rate Pass-Through from Central Bank’s Policy Rate to the Market Rate: Evidence from China

9 Pages Posted: 8 Jun 2020

See all articles by Chiu-Lan Chang

Chiu-Lan Chang

Fuzhou University of International Studies and Trade

Fang MIng

affiliation not provided to SSRN

Chung-Hua Shen

National Taiwan University - Department of Finance

Date Written: May 12, 2020

Abstract

The paper investigates from the policy rate to the market rates under the interest rate marketization of the People’s Bank of China (PBC) since 2014. The focus is on the pass-through of the PBC’s policy target rates pass-through to the market rates. Empirical results, on the daily basis of an error-correction model suggest that the long-run pass-through of the policy target rates pass-through to the interbank market rates are all significant. The pass-through of the policy target rates DR007 and Shibor07 to the market rates which are 7-day interbank pledged repo rate (R007) and 7-day interbank offered rate (Chibor07) are both complete and in a very short period of time. The results confirm that DR007 as the PBC’s policy target rate takes an important role in the Chinese interest rate pass-though.

Keywords: Interest Rate Pass-Through, Policy Rate, Marketization

JEL Classification: E42, E43, F31

Suggested Citation

Chang, Chiu-Lan and MIng, Fang and Shen, Chung-Hua, Asymmetric Adjustment of Interest Rate Pass-Through from Central Bank’s Policy Rate to the Market Rate: Evidence from China (May 12, 2020). Available at SSRN: https://ssrn.com/abstract=3599138 or http://dx.doi.org/10.2139/ssrn.3599138

Chiu-Lan Chang (Contact Author)

Fuzhou University of International Studies and Trade ( email )

No.28,Yuhuan Road,Shouzhan New District,Changle
Fuzhou City, Fujian Province 350202
China

Fang MIng

affiliation not provided to SSRN

Chung-Hua Shen

National Taiwan University - Department of Finance ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

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