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Interest Rate Pass-through in a Dual-track System: Evidence from China

Author

Listed:
  • Xuejun Jin
  • Frank M. Song
  • Yizhong Wang
  • Yi Zhong

Abstract

Using the Phillips–Loretan approach, this paper verifies the degree and speed of pass-through and rigidity of different interest rates in China, as well as the response of private loan interest rates to other interest rates during 2002–2012. The results indicate that the long-term pass-through from the interbank offered rates and deposit and loan interest rates to the treasury bond rate is incomplete, but that the long-term pass-through to private loan interest rates is overshooting. The long-term pass-through from the deposit and loan interest rates to the overnight interbank offered rate is incomplete, while that to the interbank offered rates of other maturities is complete. The short-term pass-through and adjustment speed of interest rates exhibit asymmetry. Therefore, before considering a full liberalization of interest rates, it is important to further enhance the competition of the financial system and the function of different interest rate systems, such as the interbank market and bond market.

Suggested Citation

  • Xuejun Jin & Frank M. Song & Yizhong Wang & Yi Zhong, 2014. "Interest Rate Pass-through in a Dual-track System: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 22(4), pages 21-39, July.
    • Handle: RePEc:bla:chinae:v:22:y:2014:i:4:p:21-39
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    File URL: http://hdl.handle.net/10.1111/j.1749-124X.2014.12073.x
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    Cited by:

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    2. Wang, Gang-Jin & Jiang, Zhi-Qiang & Lin, Min & Xie, Chi & Stanley, H. Eugene, 2018. "Interconnectedness and systemic risk of China's financial institutions," Emerging Markets Review, Elsevier, vol. 35(C), pages 1-18.
    3. Jing Yuan & Yan Peng & Zongwu Cai & Zhengyi Zhang, 2022. "A Quantitative Evaluation of Interest Rate Liberalization Reform in China," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202214, University of Kansas, Department of Economics.
    4. Andrew Phiri, 2018. "Asymmetric Pass-through Effects from Monetary Policy to Housing Prices in South Africa," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 16(2 (Summer), pages 123-140.

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