An Empirical Research Of China's Interest Rate Determination Model

The main point of this article comes mainly from the IS-LM model generated from Keynesian by Hicks(1937) and Hansen(1953).This model takes into account the product market and money market equilibrium at the same time. This paper mainly uses quantitative research, combined with qualitative research, and then combined with China's actual economic data to test the IS-LM model theory in China.This paper reviews the relevant research and theoretical point of main well-known scholars both domestic and overseas. In the development of West's interest rate determination theory, there has emerged interest rate determination theory of Marx, the savings and investment theory of the classical school, Keynesian liquidity preference theory, loanable funds theory and IS-LM model theory and so on. Secondly, this paper introduces the changes in interest rate policy of the market economy in China, construction of the IS-LM model and the relationship between interest rate and the main economic variables, for example price level, economic growth and money supply. Again, it establishes IS-LM model based on China's actuarial economic data, and tests the IS-LM model for China's current economic state. This article selects the quarterly data of 2001-2009, examines the cointegration between interest rate and GDP, established IS model, and then tests the cointegration of interest rate,M1 and GDP, established LM model. Finally, it draws conclusion through the empirical research.