An Empirical Study on the Impact of Monetary Policy on the Bond Market in China

Abstract

Purpose - This study aims to analyze the fluctuating impact of monetary policy effect on the bond market and the stock market. Design/methodology/approach - Monthly data from January 2008 to October 2018 were selected. Seasonal treatment was done to eliminate the influence of seasonal factors on the time series, and then heteroscedasticity was eliminated by processing the data logarithmically. Findings - We analyzed the theoretical transmission of monetary policy in the bonds market and found two things. First, the stock bonds market plays an important role in the transmission of monetary policy. Secondly, the bonds market not only plays an important role in the transmission of monetary policy, but its development also affects the relationship between the supply and demand of money in the monetary market, thus affecting the implementation effect of monetary policy. Research implications or Originality – The narrow money supply was found to have a greater impact on bond price, and the other monetary aggregates and interest rate had a less impact on the bond market. This shows that China’s interest rate marketization has a gradual improvement process and with the continuous advancement of interest rate marketization, interest rates may play a greater role in the future.