Emperical Studies On Interest Rate Rules In China

Interest rate rules that monetary policy makers mainly based (target) interest rate on the gap between (expected) inflation and target inflation and the gap between (expected) output and potential output in accordance with certain parameters. Wicksell (1898) put forward the early interest rate adjustment rule, after that Taylor rule (1993), smoothing Taylor rule (1998) and forward-looking Taylor rule (2000) all have been raised. Then the new Wicksell school theory of interest rate rules finds theoretical basis for interest rate rules. Combination of literature, empirical analysis of this paper selects Taylor rule, forward-looking Taylor rule and smooth adjustment of the forward-looking Taylor rule.By fitting method, this study finds that the parameters using the U.S. Taylor rule fit Chinese data poorly. By GMM, this paper estimates a smooth adjustment of the parameters of the forward-looking Taylor rule, and finds that although the fit is better, but the theory of foreign means that the estimated interest rate rules on our economic stability of the system is unstable. Using the equilibrium model with a relatively fixed nominal exchange rate, export-led growth and labor force flows, from the theoretical arguments, the estimated interest rate rule does not necessarily mean the estimated interest rate rules on our economic stability of the system is unstable, and the impulse response method on vector autoregressive (VAR) model confirmed that our country's economic system is stable, then gets the estimated interest rate rules on the economic stability of the system is stable. For non-stationary data, based on cointegration, this paper can get long-term relationships among interest rates and inflation gap, output gap and other arguments, and get generalized responses of the interest rate to the inflation gap and output gap by the impulse response method on vector error correction (VEC) model.