The Research On The Time-varying Effect Of China’s Interest Rate On Consumption And Investment

With the constantly deepening of financial reform in our country, the interest rate has become the most effective means of indirect macro-control, and has become an important variables for real sector and financial sector. Interest rate not only has a effect on the personal consumption-saving behavior and investment decision of the corporate sector, but also depends on the consumption and investment behavior of individual. The marketization of interest rate has made great progress in China, as of October 24, 2015, interbank lending rates, interbank bond market in China, the paper market, financial institutions loan interest rate has achieved market, and the financial institutions deposit interest rate floating range has been cancelled, so that our country interest rate has a basic realization of marketization.And interest rate has increasingly significant effect on investment regulation and consumption regulation. However, the problem of China’s interest rate transmission mechanism for investment and consumption in academic circles has been debated over a long period of time, whether the mechanism of interest rate on consumption and investment in China has changed over time, whether the situation of consumption and investment lack of flexibility to interest rate has changed, whether the dynamic relationship between investment and consumption tends to be optimized, whether the impact of investment and consumption on interest rates has enhanced. And these above problems are to be studied. This article try to under the view of time-varying to study the intermediate links of interest rate transmission mechanism, namely the interest rates on consumption and investment. Because to study the time-varying effect of mechanism of interest rates on consumption and investment, this is not only an important theoretical problem, but also has strong practical significance. The research not only can help to adjust and optimize the dynamic relationship between investment and consumption in China, also can help to provide decision support for China’s macroeconomic regulation and control, in order to speed up China’s economic development mode change and provide practice guidance on expanding domestic demand strategy.Firstly, the article analyzes the relationship between interest rate, investment and consumption. The interest rate is the price of capital. Investment is a commercial behavior that use capital to obtain economic returns. Consumption refers to the individual’s labor income in exchange for social products to meet their personal needs. Lower interest rates will stimulate investment and consumption; otherwise, it will inhibit investment and consumption. The coordinated development of investment and consumption is the goal ofthe country’s fiscal policy and monetary policy. The elasticity of investment and consumption to interest rate not only have an impact on the national microeconomics, but also have a huge impact on the national macroeconomics. Therefore, under the condition of socialism with Chinese characteristics, only the growth of investment demand and the growth of consumer demand coordinate developing, the two can become the inexhaustible strength of China’s economic growth and social development, and,to achieve a strong,democratic, well-being’s "China dream".Second, this paper analyzes the present situation of investment and consumption interest rate of our country. In terms of investment, due to the total amount of capital formation growth is significantly faster than the growth rate of GDP and the total consumption of residents, causing serious deviation from the level of its. In terms of consumption, in recent years, the total consumption of China maintained a relatively high growth rate, but relative to the huge national production and relatively high investment rate and investment growth rate, lower consumption rate and consumption growth rate is still the main economic structural problems in China.Then, we use the TVP- VAR- SV model respectively to make an empirical analysis on the mechanism of action of market rate and control rate of our country to investment and consumption, and get the following conclusions: First, the short-term impact of market interest rate fluctuations to itself is bigger than the long-term effects on itself. The short-term impact of control interest rate fluctuations to itself has no significant difference with long-term effects. the market interest rate fluctuations impact on its own is greater than the controlled interest rate’s impact on its own. In detail, the Chibor fluctuations impact on its own is greater than the Shibor influence on its own, and deposit interest rate fluctuations impact on its own is less than the loan interest rate influence on its own,control interest rate volatility there was no significant difference of short-term and long-term effects on their own. Second, the market interest rate fluctuations affect investment in the short and long distinct, short-term impact is greater than the long-term effect, and control interest rate fluctuations affect investment in the short term is weaker than in the medium and long term impact. Market interest rate fluctuation on investment is greater than the effect of regulation on short-term interest rates affect investment in the short term. Among them, since 2007, Chibor fluctuations impact on investment, Shibor fluctuation on investment, increased the impact of Shibor fluctuations have a short-term impact on investment than Chibor short-term impact on investment; Deposit interest rate volatility in the medium and long term impact on investment weak on loan interest rate volatility’s influence on investment, since 2002, the deposit rate in the short term impact oninvestment is greater than the loan interest rate’s influence on investment, and deposit and loan interest rate fluctuations impact on investment since 2002 began to weaken gradually.Third, since 1996, the effect of market interest rate fluctuations on consumption significantly greater than regulation rates on consumption. Among them, 2007-2011,Chibor fluctuations impact on consumption is greater than the Shibor influence on consumption. After 2012, the Shibor fluctuations impact on consumption is greater than Chibor influence on consumption; Since 1996, deposit interest rate volatility’s influence on consumption is greater than the loan interest rate fluctuations impact on consumption.Fourth, the impact of changes in the investment and consumption to control interest rate effect with consistency, the impact on the market interest rate effect is not consistent.Among them, the investment and consumption fluctuations affect Chibor for positive impact, while the impact on the Shibor as the negative impact. Investment and consumption fluctuations impact on lending and deposit rates are all positive impact.