DP 2023/1 - Makram El-Shagi / Lunan Jiang: How the PBoC´s new MLF affects the yield curve

Makram El-Shagi, Lunan Jiang

CFDS Discussion Paper 2023/1

Abstract

In this paper, we assess the impact of the Medium-term Lending Facility (MLF), an instrument recently introduced by the People's Bank of China (PBoC), on treasury and corporate bond yields. This instrument and, more specifically, the transmission of its use through treasury bond yields to corporate bond yields plays a major role in the more market-based policy the PBoC envisions for the future. Using a semi-parametric local projection framework, we show that the mechanism is already fairly effective, allowing the PBoC to manipulate the entire yield curve.

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