Theoretical and Empirical Analysis of Interest Rate Corridor

Abstract

Abstract:

The corridor's mechanism of reducing the volatility of interest rate is studied in this paper from two aspects:theory and empirical research. On the one side, by building a partial equilibrium model, the operating mechanism of interest rate corridor is illustrated and it is proved that the function of the corridor would be reinforced once the width is narrowed or the facility of the ceiling is improved. On the other side, by utilizing the dummy variable and GARCH model, an empirical research is conducted on the data from Chinese market. It is shown that the effect of the adjustment of SLF rate in March 2015 is more obvious than the one in November 2015, though the former one has a narrower range of adjustments. It is supposed that the enlargement of the scope of applicants in the first quarter of 2015 led to improved facility of SLF, resulting in the reinforcement of effects of the adjustment in March 2015.

Key words: interest rate corridor, theoretical model, empirical analysis

Liang Ziling, Song Yinqiu, Lu Ping. Theoretical and Empirical Analysis of Interest Rate Corridor[J]. , 2018, 30(12): 23-31.

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