A Study On Interest Rate Transmission Mechanism And Effection In China

The interest rate mechanism is a process which reflects a country’s ability that can exert effective influence through monetary policy of interest rate adjustments to the objectives of economic variables which convey the intention of the central bank’s monetary policy. Since the1970s, many countries have begun to relax the financial control and the pace of financial innovation was accelerating. Many Western countries’ monetary policy gradually switched to a market-oriented rate mode. The interest rate transmission as the main monetary policy transmission channels had become the development direction of these countries. The steady progress of China in the process of interest rate liberalization, the interest rate transmission mechanism of monetary policy gradually being highly concerned about the academic and policy-making departments, in this context, analysis of the interest rate transmission mechanism and its effection, proposals to establish and improve conditions for China’s current monetary policy rate transmission mechanism development path become the research of this paper. This regulatory role for monetary policy to give full play to China’s macroeconomic. It will give full play to the role of monetary policy macroeconomic regulating and promoting the development of economy healthy and steady which have a theoretical and practical significance.Based on analyzing the effects of western developed countries’ interest rate transmission mechanism and the existing typical theories interest rate transmission mechanism of monetary policy, considering of the actual situations that current market-oriented reform of interest rates has not been complete achieved and "dual-track" rates coexist. Studies were carried out on the contents of the qualitative analysis and quantitative analysis. In the aspect of qualitative analysis, This paper analyzed the relationship between market interest rates and the interest rate transmission and analyzed the problems of China’s current interest rate regime. By the introduction of financial repression theory model to do further analysis to confirm financial repression in turn prove the negative impacts on the effects of interest rates transmission in china. In the aspect of quantitative analysis, this paper made empirical studies on a two-stage of interest rate transmission. We constructing a VAR model then through the methods of ADF unit root test, cointegration analysis, Grainger causality test, impulse response analysis, variance decomposition methods, conducting every aspects of long-term and short-term effects. The results show that it is true of existence of conduction from the money supply to the financial markets and from the financial markets to the total output.Finally, this paper based on the above research results, and puts forward some related policy suggestions. The first one is to accelerate the interest rate liberalization reform. The second one is to improve the development of financial markets. The third one is to accelerate the development of the financial market. The last one is raise the the sensitivity of the real economy to interest rates.