Effectiveness Of Interest Rate Marketization Process Of China’s Interest Rate Transmission Mechanism Of Monetary Policy

Since macroeconomic changes are complicated, how to maintain the sustainable and healthy development of social economy is the basis of monetary policy for governments. Besides, monetary policy, when effective, is also important means of macro-control by central government. Although there are many other transmission mechanisms, the interest rate transmission has been becoming increasingly prominent and proven itself as the most important part in the transmission of monetary policy. Since the 1970 s with the development of economic globalization, major developed countries in the world have gradually and orderly liberalized the financial regulation and meanwhile promoted financial innovation with various monetary policy tools. The early entry into the marketization process of interest rates leads to the deep research on the interest rate transmission of monetary policy in the interest rate market. In such international context, China’s market-oriented interest rate reform is decided in accordance with national policies and keeps a gradual and steady development. High attention has been given to the mechanism of interest rate transmission from both senior leaders of government departments and scholars in the academic field. Therefore, it is of important theoretical and practical significance to analyze this mechanism in the market-oriented interest rate reform and make relevant suggestions to promote the fast, healthy and steady development of China’s national economy.China can fully learn and use foreign experience and methods to continually enrich its monetary policy tools for interest rate transmission, making it take greater effect. The deep analysis and research of China’s interest rate transmission mechanism can be done by taking market interest rates as the breakthrough and exploiting the reform progress of market-oriented interest rates. By picking up the year of 2007 as the time point of releasing LIBOR, China’s market-oriented interest rate reform can be divided into two phases, the former from January 1999 to December 2006 and the latter from January 2007 to December 2014. Empirical analysis is made by applying the unit root test, JJ test, cointegration test and VAR mode as well as Granger causality test to see whether the interest rate transmission changes with the marketzation of interest rates and then conduct the effectiveness analysis of this transmission in the reform. Furthermore, taking the future trend of China’s monetary policy direction into consideration, a mechanism aimed at exploring and improving macro-prudence is put forward to promote economic restructuring and transformation, refine the interest rate market and the formation mechanism of RMB exchange, improve the financial market system, and also deepen the reform of financial institutions.