The Real Interest Rate Gap Model And Demonstration Test In China

All the time , the Real Interest Rate Gap has been regarding as an usefulreference variable of the monetary policy. And at present, the research aboutReal Interest Rate Gap is often used for explaining the connection andconduction between the normal economy and the real economy. So wedescribed this important economic variable in the macroeconomics from thedefinition , economic signification , experience validate and policyapplication ,etc in detail.The Real Interest Rate Gap is the difference between real interest rateand the natural interest rate. Here the real interest rate means the real marketinterest rate , that is to say the interest rate which is the decision of individualbehavior by the adjusting of the normal interest rate and the inflation which isexpected or not expected. The natural interest rate means the natural interestrate defined by wicksell. Because of the real interest rate and the naturalinterest rate both being difficult measured, in order to simplifying the questionof measuring and advantaging demonstration research and policy made ,therefore we adopted the Real Interest Rate Gap as the economic variablemeasuring.During business cycle , the Real Interest Rate Gap contacted the outputand the inflation .And which reflected the difference between the aggregatedemand and the aggregate supply, influenced the inflation . If the gap ispositive, namely the real interest rate is greater than the natural interest rate,means the aggregate demand increases faster than the aggregate supply, thiswill cause the pressure of rising to the inflation. On the contrary, if the gap isnegative, mean the aggregate demand increases more slowly than theaggregate supply, this will cause the pressure dropped to the inflation. Fromthe view of policy analysis, the basic goal of macroeconomic policy is topromote economy develop to the balanced state. For this reason, the positiveinterest rate gap indicates the policy maker should take such policies as tightfinance policy and monetary policy ,etc. , emergence for preventing economyfrom presenting the overheated and inflation and rising; The negative interestrate shortfall indicates the policy maker should adopt such policies as loosefinance policy and monetary policy ,etc. , in order to prevent the emergence ofthe decline in economy and deflation. From the point of view of modeling,measuring the Real Interest Rate Gap is the keys of connecting the realeconomy and normal economy, if the real interest rate estimates incorrectly ,which will then exert an influence on every behavior equation andperformance of the system of the whole model, thus make us be unable tocarry on deep analysis to the macroeconomics on the basis of model. Socorrect estimation of the real interest rate gap is the important foundation ofwhether we can understand the macroeconomic state and whether we canmake the macro economic policy. But it is true the real interest rate and thenatural interest rate can't be observed ,therefore the estimation to the RealInterest Rate Gap will be more difficult . The assumed conditions donedifferently in influencing the demand , supply for the output, will receivedifferent estimation conclusions to the Real Interest Rate Gap.We structure a general equilibrium dynamic model of optimize behaviorunder the stick price, the model is made up of IS equation , AS equation andinterest rate rule (IR ) , these three equations :We utilize state space model and Kalman filter to measure the variablewhich can't be observed --The China Real Interest Rate Gap and Chinapotential GDP . Demonstration result indicate China Real Interest Rate Gap isdrop and become more and more steady trend, potential GDP entered aslightly fluctuating coordinate course after a wide fluctuate from the firstquarter of 2000 to the third quarter of 1995. For now, the China real interestrates is slightly lower than the short-term natural interest rate, real GDP ishigher than potential GDP, GDP remained stable after great fluctuations in2002, but the inflation rate rose slightly. Through the experience test of thisarticle, the research of the The Real Interest Rate Gap Model accords with theeconomy theory, namely real interest rates is lower than the short-term naturalinterest rate, the real output is higher than the potential output, the inflationrises. So, we have drawn three actual reasons for reconsidering the importanceof Real Interest Rate Gap.First , understand the behavior of the Real Interest Rate Gap is importantfor understanding the experience relation among the true rate of interest andoutput. We have compared the Real Interest Rate Gap and GDP whileanalysing in the experience test, finding the Real Interest Rate Gap haspointing effect on the output, and normal economy has two quarters laginfluence on real economy.Second, the Real Interest Rate Gap combines with output gap havestronger instruction characteristics for making the policy. The output gap hasfaint correlation more than the Real Interest Rate Gap in the model, theinflation varies with the output gap and the Real Interest Rate Gap. Bystudying the Real Interest Rate Gap can get valuable information about theinflation and the output gap.Third, the measurement of the Real Interest Rate Gap might has someuncertain factor less than the output gap. Though the measurement of theoutput gap is often used in the policy analysis and predict, if recall carefullythat will find a lot of measurements are basis of the suppose that the potentialoutput of the determinacy trend (for example linear , square ). On the contrary,the economic theory thinks the potential output in the business cycleinfluenced by the fluctuates. Therefore a lot of output gap standard validity ofmeasurement depend on potential output smooth, this assumption is verydifficult to be proved in the general equilibrium dynamic model . Our modelhas proposed the potential output have suitable fluctuation, but there is trendnature ideally. On the other hand, though the data of nature interest ratedifficult to get, the Real Interest Rate Gap might has the strength connectionbetween the real economy and normal economy. In this way , there are...