Research On The Correlation Between Interest Rate And Balance Of Trade In China Both Theoretically And Empirically

Since 1994, China's balance of trade say goodbye to trade deficit, and then come into the stage of increasing trade surplus. The continual huge trade surplus make China facing unprecedented challenge, and China has to adjust trade imbalance presently. Under open economy circumstance, with the development of financial market deepening, interest rate has become the most important bridge of connecting monetary market, capital market, commodity market and foreign exchange market. And interest rate is the principal lever to adjust the flow of domestic capital and international capital, which is also the important variable of linking material department and financial department. As an important macroeconomic variable, interest rate has become the important method that be used by government to control macro-economy. Obviously, besides using import & export policy based on trade view to arrive trade balance development, we also should use financial policy to arrive trade and economy balance. Through the joint efforts of the policies, then finally come to China trade balance.Using the correlation between interest rate and balance of trade as research object, referring some scholar's literatures of China and other countries on relevant issue, this paper do research to the correlation between interest rate and balance of trade in China, both theoretically and empirically. Finally, regarding how to perfect interest rate policy to adjust China trade imbalance, we give advises based on empirical analysis combining theory.Five chapters are divided in this paper. First, introduce the background and research thoughts, also look back into the literatures of relevant research. In the second chapter, introduce the status quo of China's interest rate and China's balance of trade respectively. In the third chapter, do systemic research on the correlation between interest rate and balance of trade in China, both theoretically and empirically. Using relevant data ranging from January 1994 to December 2009, and through the econometrics research method of OLS regression and Granger causality, we find that the realistic relationship between interest rate and balance of trade in China do not conform to the traditional economic theory. Then, through the analysis compared with America, above empirical conclusion, which indicate that interest rate policy in China can't adjust balance of trade and the transmission mechanism of interest rate policy doesn't work, is proved further. Tightly follow the third chapter, the fourth chapter analysis the transmission mechanism between interest rate and balance of trade in China. Based on the conclusions of empirical analysis, the transmission mechanism of interest rate in China that used to control macro-economy is frustrated. So, the interest rate policy in China can't adjust the balance of trade effectively. Finally, On the basis of the above research, chapter five, the last part of this paper put forward relevant policy countermeasures: further development and consummate of financial market and interest rate maketization, increase the interest rate elasticity of the economic body, combine the reform of exchange rate policy and other relevant policies. Then, interest rate policy can be effectively used to adjust trade imbalance, while also accompany the relevant policies.