The Impact of New Monetary Policy Instruments on the Bond Market

Establishing a modern central banking system in China necessitates the deployment of a novel suite of monetary policy instruments and unencumbering of the channels through which these policies are transmitted.A critical aspect of evaluating the soundness and efficacy of monetary policy is to examine its capacity for tempering non-stationary volatility in the bond market.We use a synthetic difference in differences model(SynthDid),which draws upon panel data from eight countries spanning October 2011 to June 2022 period,to accurately determine the efficiency of the transmission of these monetary policy instruments.The Medium-term Lending Facility(MLF)can mitigate fluctuations in both medium-and long-term bond markets.Implementing a unified lending cycle of one year and expanding MLF collateral enhance the transmission efficiency of the newly established monetary policy instruments to the bond market.Additionally,the utilization of the Standing Lending Facility(SLF)substantially reduces the risk associated with short-and medium-term bond markets.Nevertheless,the efficacy of monetary policy transmission via different instruments varies in different periods.