An Empirical Analysis of the Impact of Interest Rate Liberalization on the China's Interbank Bond Market Liquidity

Abstract

The purpose of this article is to analyze the relationship between the reform of interest rate and interbank bond market liquidity. Firstly, the authors used multiple structural breakpoints test to analyze the effect of interest rate liberalization on the interbank bond market liquidity from the angle of structural mutations. Then, the researchers used Vector Auto Regressive model frame to quantitatively analyze the effect of relevant factors on the interbank bond market liquidity. The results show that the interest rate liberalization has not produced structural mutation effects on the interbank bond market liquidity; Interest rate liberalization can increase the interbank bond market liquidity in long time, however, this effect is very small and the effect gradually disappears over time.