A Dynamic CGE Analysis On The Relationship Between Interest Rate Liberation And Longrun Economic Growth

Financial marketization has entered a new stage in which the competitionbetween bank rate and nongovernmental interest rate would be more acute so that thereal economy would be affected more seriously..At the Third Plenary Session of the14th Central Committee of the Communist the party put forward the marketization ofinterest rate for the first time.It is almost20years until2014.During the periods,wegive up limiting the interest rate of inter-bank lending at first，set up Chibor andShibor on1996and2007to be the market’s base standard. Then we let go the controlof the bond rate,so that we realize the marketization among Treasury matket,cashtransactions market between Banks and a variety of bond repo transactions marketbetween Banks. Then,we explore the route to let Deposit and lending interest raterealize marketization step by step.Untill2014,we only have the control by cappingdesposit rates.So there are lots of problems left,which are lower real interestrates,bank discrimination and lower productivity of financial investment.Based on the effect on economic growth by interest rates iberalization, the paperexamines the rate discrimination in industry-level using a24industries panel data atfirst.We use generalized least squares method to estimate the effect，The result showsthat there are credit discriminations among industries for the feature of state-ownedenterprises’ distribution. Then based on the dynamic CGE model（Chinagem model）,we expand it which reflect the bank discrimination between industries and apply it tosimulate the rising of basic interest rate、eliminating of the bank discriminationbetween industries and more efficiency of financial service. The results show thatalthough rising of the basic interest rate do harm to long-term economic growth inChina, the elimination of the bank discrimination optimize industry structure,whichwould slow down the decline of investment and economic growth and promoteemployment at the same time. In the long run, the welfare of interest competitioncome from the more efficient financial service, it would mine the potential of China’seconomic growth.