Study On The Relationship Between The Market-Oriented Reforms Of Interest Rate And Monetary Policies In China

With the rapid development of financial liberalization and deregulation of governments across the world, research on the interaction between the interest rate and monetary policy has became increasingly focus of the financial economists, as well as the monetary authority. What's role does the interest rate plays in the decision process of monetary policies? How to make use of this relation?Theoretically, dispute on the questions of interest rate in the monetary policy involve: the questions of externalization and internalization of the interest rate; whether the interest rate applicable to act as an intermediate objective tool of the monetary policies; and what role does the interest rate plays in the monetary policies. At the background of strict regulation, interest rate is always treated as an external variance in the whole financial system in China. While, the internalized interest rate tends to be weighted in the process of market-oriented reforms in China in recent years. And the interest rate has long been used as a manipulated objective tool, but not an intermediate objective tool. As a key variance, the interest rate plays an important role in the resources allocation even before the reforms, in which its role has been distorted inevitably. With the deepening of market-oriented reforms, the distortion has been correcting gradually.By using Variance Decomposition model and Impulse Response Approach, we hold up in this thesis that, generally speaking, the interest rate plays certain role in the decision of monetary policies; while this role is limited, especially in the condition that the primary interest rates are not market-oriented. At the same time, due to the lag of property rights reforms and the low elasticity and sensitivity of micro market participant, the role of interest rate in the modification of savings, investment and consumption is limited either.Therefore, when considering deeper, we suggest that the property rights reforms should be practiced as earlier as possible in order to make the interest rate has an more important and properly role in the market-oriented reforms. The aims of property rights reforms are to make the market participants operate as an function of the interest rates, set up modern enterprise institution in the company, improving their senses of efficiency and "soft-budget-constraint", which constitutes the necessary conditions of the implementing of monetary policies. During the process of market-oriented reforms, we ought to develop a complete market, create more financial products, and to offer incentives for small enterprises, thus to accelerate the development of the financial market.