SHEN Lin：Can Interest Rate Corridor Smooth the Volatility of Interest Rate?

Abstract：As a new monetary policy tool, interest rate corridor regime is regarded as an automatic stabilizer against the volatility of interest rates.Based on the theoretical study, this paper tries to confirm this conclusion from the following three aspects.Firstly, we find that the interest rate volatility of countries which have implemented interest rate corridor regime is lower than the countries which have not implemented the regime.And as for the countries which have implemented the regime, the interest rate volatility is lower than before.Furthermore, the narrower the countries' interest rate corridor spreads are, the slighter interest rates volatility will be.Finally, interest rate corridor regime can lower the sensitivity of interest rate on the shock of macroeconomic variables, so as to confirm the result that interest rate corridor regime can mitigate interest rates volatility.As China's economy develops, interest rate corridor regime will be an important approach of monetary policies.The study of this paper can provide a valuable reference for policy makers.

Key words： Interest Rate Corridor    Overnight Interbank Offered Rate    Corridor Spread    Open Market Operations

source:Finance & Trade Economics ,No.9,2015