Abstract

This paper examines the daily responses of market interest rates to three monetary policy announcements in China using the event-study approach. I find that the interest rate responses to announced changes in the regulated retail interest rate and the required reserve ratio are positive and significant at all maturities of interest rates but smaller at the long end of the yield curve. By contrast, market interest rates barely respond to the qualitative MPC announcements about the monetary policy stance. These findings are robust to alternative econometric methods that correct for potential bias arising from violations of the identification assumption. These findings suggest that the PBC should formulate its policy communication in a quantitative way.

https://doi.org/10.1016/j.jbankfin.2020.105766