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The Roadmap of Interest Rate Liberalization in China

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  • Chong, Terence Tai Leung
  • Liu, Wenqi

Abstract

This paper examines the roadmap of interest rate liberalization in China, including the current dual-track interest rate system and the future benchmark rate system. It provides a theoretical foundation for China to develop its own benchmark interest rate. A Vector autoregression model (VAR) is estimated to investigate the effectiveness of Chinese market interest rates, Shanghai Interbank Offered Rate (SHIBOR), and repo rates against different factors such as market size, volatility, transmission channels of monetary policy, and term structures of interest rates. The result shows that SHIBOR affects both the market and the economy. As SHIBOR promptly reflects the changes in currency markets, we argue that it has the potential to become China’s benchmark interest rate.

Suggested Citation

  • Chong, Terence Tai Leung & Liu, Wenqi, 2016. "The Roadmap of Interest Rate Liberalization in China," MPRA Paper 80564, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:80564
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    Cited by:

    1. Lien, Donald & Sun, Yuchen & Zhang, Chengsi, 2021. "Uncertainty, confidence, and monetary policy in China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1347-1358.

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    More about this item

    Keywords

    SHIBOR; interest rate liberalization; shadow banking.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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