China Economic Research Center Working Paper Series
Longzhen Fan and Anders C. Johansson
WHAT MOVES BOND YIELDS IN CHINA?
Abstract: This paper analyzes the joint dynamic processes of
macroeconomic and monetary variables and bond yields in China. We show that
macroeconomic variables as well as monetary policy variables have a
significant impact on two factors that capture the variation in yields. An
increase in the inflation rate and economic growth result in a rise in the
yield curve. Similarly, an increase in the money supply causes a rise in
the yield curve, albeit with a delayed effect. Finally, when official rates
are raised, the long yield shows signs of a delayed decline. Overall, the
long yield is more sensitive to most changes in macroeconomic and monetary
variables. These results differ from an earlier study on bond yields by Ang
and Piazzesi (2003), who show that the U.S. short-term rate is more
sensitive to changes in macroeconomic variables. Possible explanations for
the difference include certain unique structural features in the domestic
financial system and the way monetary policy is conducted in China.
Keywords: China; yield curve; macroeconomic factors; monetary policy; (follow links to similar papers)
JEL-Codes: E43; E44; E52; E58; G12; (follow links to similar papers)
34 pages, June 1, 2009
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