Theoretical And Empirical Research Of Chinese Interest Rate Change And Its Operational Rule

Interest rate has extremely important implications on a country's economy. Currently, the market economy countries apply interest rate as the main tool of macroeconomic regulation and control. When the economy is overheating, prices continue to rise, interest rate will rise. When the recession and the deflation come, it will begin to decline. Therefore, the theory and practice of interest rate change and its operational rule has been the research focus both at home and abroad.At present, the operating specifications of monetary policy have the two types of "discretionary" and "by the rules". Although Keynes's liquidity preference theory provides the discretionary monetary policy practice——i.e. " act against the economic winds"—by central banks a theoretical foundation, the study by Kydland-Prescott (1977) and Barro-Gordon (1983) shows that the discretionary monetary policy easily leads to "time inconsistency" and the inflation bias. After 90 years of the 20th century, Western scholars and policy makers began to gradually give up the discretionary monetary policy thinking, instead advocating the implementation of monetary policy rules. In this context, interest rate rule thus becomes the main operational principle of central banks' monetary policy in some countries and is increasingly being adopted in practice.View of these, the paper chooses interest rate change and operating rules as the theme of its research. Based on the depth analysis and tests of Chinese interest rate change, central bank's smooth operating characteristics and target preferences and Chinese macroeconomic structure, this paper proves that the goal of China's interest rate operational mode should be non-linear interest rate rules, which uses the rate of inflation as a policy switch variable in a structural change regression model and contains such factors as interest rate smoothing, money supply, asset prices and exchange rates. While there are some constraints factors in the application of the rule, this paper proposes some corresponding measures for the effective implementation of the rule at last.