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A Study on the Triple Linkage Mechanism of the Short-Term Money Market Based on VAR Model

Author(s)

Zilin Xing*, Aijia Yang

Affiliation(s)

North China University of Technology, Beijing, China *Corresponding Author

Abstract

Against the backdrop of China's multi-tiered money market integration and more precise monetary policy regulation, understanding the short-term interest rate transmission mechanism is crucial for policy effectiveness and cross-market risk prevention. Using daily data from January 2018 to January 2026, this paper selects three core rates—the offshore RMB market, the exchange-traded pledged repo market, and the onshore interbank market—to construct a Vector Autoregression (VAR) model, systematically investigating their price transmission and linkage mechanisms. The findings reveal that: first, the exchange-traded repo rate occupies a central position in the transmission network, exhibiting significant unidirectional Granger causality with both offshore and onshore interbank rates. Second, shock transmission is markedly asymmetric; the spillover effect of the exchange-traded repo rate is significant, while shocks to interbank rates remain largely self-contained. Third, the three rates are coordinated in the long run but display differentiated responses during volatility, with the onshore interbank rate demonstrating greater stability. Fourth, the system possesses the capacity to absorb and converge from shocks, indicating good internal stability. This paper provides empirical evidence and policy insights for understanding China's short-term interest rate system, improving monetary policy transmission, and coordinating internal and external market linkages.

Keywords

Interest Rate Linkage; VAR Model; Overnight Interbank Rate; GC001; Offshore RMB Market; Monetary Policy Transmission

References

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