Dentifying And Testing The Disequilibrium Of The Monetary Interest Rate

As one of the most important variables in macro-economics, the interest rate has always token an important station in the mind of economists. From the classical economics, Keynesianism to the neoclassicism and so on, most economists had researched the determine mechanism of the interest rate, but some of the productions seemed not open out the actual operation mechanism of the interest rate .the monetary field (nominal economy) has been separated from the actual field (actual economy), then money becomes the veil on the actual economy. But the veil can not be lift simply, various genres walk up different ways. The classical economists study the interest rate in actual economy, ignoring the monetary system. While the Keynesianism economists scantly fasten on the monetary market. In fact, the interest rate connects the monetary system and the actual system, influenced by money supply and demand, and also influenced by investment and savings. Consequently, the interest rate has become the most important problem for monetary policy.So far, there are three interest rates–nominal interest rate, actual interest rate and natural interest rate in the interest rate system. The nominal interest rate points the active interest rate in the monetary market; the actual interest rate is the nominal interest rate after eliminating the inflation influence; the natural interest rate, first defined by Wicksell, is the equilibrium-rate which can keep the inflation stable in the actual system. However there should be'monetary interest rate'in the frame of the interest rate at least. The'monetary interest rate'exists in the monetary market. On the level of the'monetary interest rate', the money demand can not increase or reduce. The'monetary interest rate'is determined in the monetary market completely and has no direct contact with the actual economics. When the money demand equals to the money supply, the nominal interest rate equals to the'monetary interest rate'. It is occasional equality, for the nominal interest rate impacts be money demand, money supple and inflation always.Since the'monetary interest rate'is the equilibrium-rate in the money market, we seek it in money supple and money demand. The money demand is effected by GDP, the gap between the'monetary interest rate'and the nominal interest rate, inflation, total value of stock market and stochastic factors. To be concrete, this paper takes no account of the total value of stock market, for its scale is far smaller than GDP's. Then the function of money supple is: M_t^d=f(r_t,r_t^*,y_t,π_t,ε_1t)There, M_t^d is the money demand at t, r_t denotes the nominal interest rate at t, r_t^* denotes the'monetary interest rate'at t, y_t denotes GDP at t,π_t denotes inflation at t,ε_1t is an exogenous stochastic shock at t.In this paper we choose generalized money supple (M2) denotes the money supple. It is M_t^d=M2_tThere, M_t^s denotes the money supple at t, M 2t denotes generalized money supple (M2) at t.Then we added the equilibrium condition of money market. It is M_t^d = M_t^sThere, M_t^d denotes the money demand at t, M_t^s denotes the money supply at t.For avoid fake regression, this paper carried unit root test first to the observable variables-- the nominal interest rate r_t , y_t , inflation . By Augmented Dickey Fuller(ADF)statistic, time series r_t,y_t andπ_t all accept assumption that there is one unit root at least, the first difference series of r_t,y_t andπ_t all refuse the assumption. And then, the series all passed Johansen test. That means that the estimating can going.Since'monetary interest rate'is an unobservable variable, we choose state space model and Kalman filter to estimate the equations. We suppose the'monetary interest rate'satisfied auto-regression process: r_t^* = c(5)rt_t-1^*+ε_2tThe results of test abet the rationality of the model we set. At the same time, we obtained very important information by comparing the'monetary interest rate'with the nominal interest rate. Since 1996, the'monetary interest rate'was higher than the nominal interest rate all the time, that abet the disequilibrium judgment that the money demand excesses the money supple in our money market. Recognize the disequilibrium is significant. If our money market is out of balance for a long time, whatever money supply is higher nor lower than the money demand, there will be plenty of money sediment in the system. Secondly, the interest rate has been controlled for a long time, so that we can not only identify the track of the macro-economics, but also the money transmission mechanism is hindered by this. The macro-economics is not at its best.Practically, there are some reasons which can interpret why our money market is in this disequilibrium state for so long time. First, the interest system has not been comprehensive and it can not transfer market information in effect. Secondly, there is much space to improve the efficiency of the money supple controlled by center bank. Thirdly, the innovations of the financial institution are still lacking. All of these result in the disequilibrium of the money market.Any development of economy implies the consistency of money supply controlled by the money authorities and the money demand deciding by the economy. We should integrate our actual economy growth, endogenesis and multiplier of the money supply and the speed of money circulation and so on. Basing on this, we could establish our money supply testing model then validate and modify it in the practice. This scientific money supply deciding method could not only satisfied the money demand in quantity, but also could optimize the structure of money supply which is seasoned with economy growth.