Analyses Of Interest Rate Policy Theories And China's Interest Rate Policy

Interest rate policy is an important component of monetary policy. It is based on government's understandings of interest rate, of its effects to economy, its relations to other economic variables. As an economic variable, interest rate gets a lot of attentions. But, what is interest rate really? What are the functions of it? What is the reasonable role of it? There are many answers. But none of them could be totally accepted. How to grasp, make choice and use mem are real questions which interest rate policy makers must face to.Since the Reform and Open Policies were implemented, our country has paid more and more attention to interest rate and used it more often than ever did. Especially since 1996, the central bank has cut interest rate for successively 7 times. On November la 1999, we also started a levy of 20% on all savings. This is very rare in the history of new China, But, it does not work as expected. Thus, the interest rate policy is severely criticized. What's the matter? Who is to blame, interest rate policy itself or the policy makers? We must answer them. This dissertation manages to give the reasonable answers to these questions from the research of interest rate theories, tries to relocate the place it rightly belongs to, looks into the real functions of interest rate and the real relations among interest rate and other variables. Then combines the answers with the practical operations in China. Analyzes the causes of success and failure. At last ends the paper by putting forward some measures and suggestions for future interest rate policy..Knut Wicksell is the first man who gives the idea of interest rate policy. In his famous book Interest and Prices, he brought up a new concept-natural interest rate to make difference from currency interest rate formed in financial market He said, the deviation of these two interest rates could harm the economy. So suggested change currency interest rate to narrow the deviation. When and how to change currency interest rate? The rule is, when inflation occurs, raise the interest rate, and when deflation occurs, just do the opposite. Thus can help to balance the economy.John Maynard Keynes is considered the first man who started the real interest rate policy. In his famous work The General Theory of Employment, Interest Rate and Money, he assimilated Wicksell's thoughts, drew a broadly similar conclusion to Wicksell. His interest rate operation rule became the general rule that widely observed by most countries in the world. The rule is following. During recessions, manage to promote money supply. An increase in money supply can lead a decrease in interest rale. The lower interest rate can lead an increase of investment Thus can lead a higher output. During blooming, do the opposite.During 1970s and 1980s, financial deepening theory1 won a lot of supporters. It put forward a quite different rule of interest rate policy for developing countries. The theory advocated liberalizing interest rate. So that promote interest rate, savings and investment altogether. But cast away its precondition of capital shortage, it makes no real difference from Keynes'. So Keynes' rule is still at the leading position.Does Keynes' rule really work? There are many debates about it It is necessary for us to look into it .Divided Keynes' way into two process, AM-AM2-Arand Ar- AI-AY. Analyze them respectively. We find out that the first process could never be controlled. So we must give it up and let the interest rate policy start straightly with the second process. To our dismay, the second process proves to be very feeble and insignificant. Because it rivets the hope on the flexibility of investment to interest rate, but as we can see, the flexibility is very faint So Keynes' rule is just a general one.The above results forced us to think about the real functions of interest rate. From the nature of interest rate and the characteristics of interest rate, we find out that the variable affects economy in many aspects. Ir. nature, interest rate is a tool of interest...