Mechanism And Expected Effect Analysis Of Deposit Interest Rate Liberation’s Impact On Chinese Real Economy

This paper mainly studies the mechanism and effectiveness of the impacts deposit interest rate have on real economy. Since the Chinese government formally proposed the idea of interest rate liberation in 1993, it has been under steady progress and now entered the deep water area, leaving only deposit interest rate to be liberated.After referring to a series of interest rate liberation related studies, this paper focuses on the mechanism and effectiveness of the impacts deposit interest rate have on real economy. This paper first gives a general introduction of the big interest rate reform policies since 1993. In Chapter four, this paper explains how deposit interest rate affects real economy. In the short and medium term,the liberation of deposit interest rate will affect real economy through the credit market. According to IS-LM model, It will lead to the decrease of investment and consumption, raise of savings. This paper uses Mckinnon-Shaw’s financial liberation theory to clarify that in the long term interest rate liberation will have positive effects upon real economy and been influenced by it in return. But it has to be based on the condition that the financial market is liberated. In Chapter five, this paper will further analyze the impacts of short and medium interest rate, mainly about its effects on factors such as savings, investment and consumption. After doing Granger causality test on the Japanese economy data before and after interest rate liberation, this paper finds that the change of deposit interest rate has obvious impacts on real economy.Based on the above research, this paper comes to the conclusion that in short term the liberation of deposit interest rate will have some negative impacts on real economy, but from a long-term perspective, the overall impacts will be positve. Chinese government has quickened its pace of interest rate liberation in the past year, but it should pay attention to control the risk of real economy. Also,it should loosen the control on interest rate market and financial market to ensure the final realization of interest rate liberation.