Bond market opening, monetary policy, and systemic financial risks – An empirical study based on the TVP-SV-VAR model
Wei-Ying Ping, Yu-Wen Hu, Liang-Qing Luo
TL;DR
This study examines how China's bond market opening and monetary policy affect systemic financial risks using a TVP-SV-VAR model.
Contribution
The paper introduces a time-varying analysis of bond market opening and monetary policy's impact on systemic financial risks in China.
Findings
Bond market opening's impact on systemic financial risks changes over time.
Contractionary monetary policy reduces risks but becomes less effective during external shocks.
Improving interest rate transmission and price-based policy enhances monetary policy sustainability.
Abstract
While the opening of the bond market provides strong support for high-level financial opening, it also accelerates the accumulation of systemic financial risks, thereby affecting the high-quality development of China’s finance. Based on data from 2003 to 2024, this paper measures China’s bond market opening, monetary policy, and systemic financial risks, and employs a TVP-SV-VAR model to investigate the time-varying relationships among bond market opening, monetary policy, and systemic financial risks. The findings are as follows: (1) The impact of bond market opening on China’s systemic financial risks exhibits time-varying characteristics; (2) Contractionary monetary policy helps curb systemic financial risks, but this effect marginally diminishes when facing external structural shocks; (3) The improvement of interest rate transmission mechanisms and the transition toward price-based…
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Taxonomy
TopicsBanking stability, regulation, efficiency · Global Financial Crisis and Policies · Credit Risk and Financial Regulations