Download The Empiric Analysis of Relation Between the Economic Equilibrium

The Empiric Analysis of Relation Between the Economic Equilibrium
Mechanism Transition and Marketlization of Interest Rates
SUN Wei1, 2, MENG Jun3, ZHANG Xulu4
1. College of Economics and Management, Northeast Agricultural University, P.R.China, 150030
2. College of Economics and Management, Heilongjiang Bayi Agricultural University, P.R.China,
163319
3. School of Science, Northeast Agricultural University, P.R.China, 150030
4. School of Finance and Banking, University of International Business and Economics, P.R.China,
100073
：
Abstract This article mainly studies the problem emerging in the interest rates marketlization reform
under the circumstance of the economic equilibrium mechanism transition. It is proved by using
empirical analysis that the transition of economic equilibrium and the economic growth model have
been changed greatly. through the measurement result analysis, We discovered some questions existed in
our country economic development and the financial reform, and this paper point out that this questions
between the economic growth financial reform can be improved by three measures to develop
policy-type finance, to break the ownership discrimination in lending money system, to maintains the
moderate low interest rate and so on.
Keywords Economic equilibrium mechanism, Marketlization of interest rates, Analysis by using
empiric
：
1 Introduction
From 1993,our country proposed the tentative plan about the interest rates marketlization reform, and
started to implement the interest rates marketlization reform in 1996, with the development in recent
years, our country have had the huge progress in the interest rates marketlization reform. But in recent
years, some scholars studying the relations between our country finance development and economic
development through empirical analysis method in our country, discovered that the relations between
our country real interest rate horizontal and the economic development level is the inverse or weak
correlation, even unexpectedly discovered that M2/GDP as weighting finance deepening target and the
economic development level assumed the strong inverse correlation. Based on this fact Facing the
qualitative change situation that our country economic equilibrium mechanism had already had in the
interest rates marketlization process, Namely changing from original supplies restraint economic to
demand restraint economic, We strengthens the empirical study of the relations between the economic
equilibrium mechanism transformation and the interest rates marketlization is very essential, for
explaining some difficult problems that the attenuation of the bank rate policy function is not to favor
the macroeconomic regulation and control carrying on smoothly, and not to favor the continue and the
healthy development for our country economy.
，
2 The economic equilibrium mechanism transition
In the contemporary economic life, non-balanced is one kind of universal social economy phenomenon.
Speaking of the theory, “non-balanced” is not only refers to the surplus economy excessively and
demanding insufficiently under the demand restraint, also includes the short economy demanding
excessively and supplying insufficiently under the resources restraint. It can relate closely the evolution
or the transformation of economical non-balanced types and the economic system and the economic
development level.
With the high velocity development in our country economic and the rich wealth accumulation having
been created, The satisfied degree for people's material culture life needs is enhanced distinctly by this,
438
which makes the expense tendency weaken gradually; economic system reforms, social products
planned distribution pattern translates market transaction schema, national income's assignment
structure pattern also gradually switches from concentrating the financial resource by the government to
“hiding the capital in the people”, to enlarging the primary assignment proportion, which also makes the
investment tendency weaken gradually. These two factors interweaves for each other, which causes the
transformation of life the consumable and throws the inborn nature from the insufficiency to the basic
balanced in the social economy, and has the constitutive surplus problem, which has gradually formed
the process from the supplies gap to the demand gap. From the reform and open to 1990 first half, our
country's economy basically was the short non-balanced economic state under the resources restraint:
the high velocity economic development had received the resources restraint, the excessively high
consumer demand and the investment demand created the aggregating supply gap, namely excessively
demanding but supplying insufficiently, since 1990 later periods, with the gradually realizing of the
economic reform and the fast growth, Economic process gradually transform to surplus non-balanced
economic under demand restraint.
Since the reform and open policy, our country has basically been in the take-off for economic
development process at the same time of economical switching, with the realizing of economical fast
growth, we completed the system transformation, which is a dominant character in our country economy
switch, this process characteristic decided that our country's economic equilibrium mechanism had
occurred archery target change. From this, our country's economic mechanism inevitably transform from
resources restraint to demand restraint, this transformation will have influence to the currency shape
structure by two ways of the financial deepening and the increasing income, which makes the medium
function of the currency overall of exchange and the effect delivering weaken gradually, and causes the
currency to transform from the non-neutrality to the neutrality.
3 The relations of interest rate and economy
3.1The theory of interest rate and economic growth
The interest rate is a price of the fund, is a cost of lends money, is also a very important variable in the
economic activity. Since more than one century, the numerous economists have devoted to research the
reciprocity of interest rate and the real economy department. But regarding the interest rate as the
financial variable core, how does it actually react with the realistic economy's target variable in the great
degree and in any direction, which is long-term varies opinion in the theorists. The representative school
of thought is the Keynes school of thought, the financial deepening school of thought in financing
structure principle, as well as early important theory school: Sweden school of thought.
The Keynes the school of thought, as a mainstream economical school of thought representative, has
stressed the reverse change relations between the interest rate and the reality economic growth. They
thought: The cost of investment is the interest rate level; the investment benefit is “Marginal Efficiency
of capital”. The nature the marginal efficiency of capital decreases progressively decides that the interest
rate level must decline correspondingly, which can guarantee the profit of the material object investment,
otherwise present the demand insufficient in investment then cause the economic recession. The
psychological factor of “the marginal efficiency of capital decreases progressively” and “liquidity
preference” decides the government must adopt reducing the interest rate monetary policy and the
expanding financial policy to achieve the goal of the expansion demand and stimulating economy.
Keynes's successor had further developed the above viewpoint.
Ronald I Mackinnon and Edward Xiao carried on the analysis to the developing country financial
present situation from separately different angle with the Keynes school of thought. They obtained the
common basic concept to think: the interest rate control carrying out finance restraint policy in the
developing country had caused the finance suppresses, thus which reduced accumulation of funds,
suppressed the investment, reduced the economic growth scale. The real interest rate in developing
country was being related with the deposit in a certain extent, with the enhancement of real interest rate,
the investment and the social deposit were rising, and thus which promoted economic growth.
Mackinnon and Xiao's above viewpoint more and more obtains the confirmation from developing
439
country empirical study, South Korea's financial reform in the mid-1960s confirmed their viewpoint
with the fact from some kind of degree.
Sweden school of thought: the difference of expanded natural interest rate and market rate may promote
economic growth. If the market rate is just consistent with the natural interest rate, the economic system
will be at the equilibrium state, the currency is neutral from the price angle at this time. In this theory,
they regard as the natural interest rate are the external variables, only then the market rate, this
endogenous variable, reduces, the goal of economic growth may be achieved.
3.2 The interest rate adjustment in our country
Since 1978, the interest rate change has been quite frequent in our country, and the margin of fluctuation
is big, the stage of the interest rate level enhancing gradually is 1978-1989 years. In this stage, Central
Bank successively raised the savings deposit interest rate about 7 times, the interest rate of 1 year time
regular savings deposit achieved historical peaks-11.34%; the interest rate compatibility adjustment
stages are during 1990~1995 years. , during the time ,the interest rate declined 3 times and upward 3
times in short time, the saves rate on loan disparity was enlarged; during 1996~2003 years, the interest
rate declined. In this stage, the People's Bank of China continually declines the save and loan rate about
8 times, the interest rate of 1 year time savings deposit declined from 10.98% in 1995 to 1.98%, the
interest rate of 1 year time on loan declined from 12.06% to 5.31%, which is the lowest bottom from the
reform and open policy; the upward stage of the interest rate is in 2004 year, The RMB interest rate of
saves the loan upward 2 times. The People's Bank of China adopted loose monetary policy by
successively declining the interest rate about 8 times from January 16th to October 15, 2008.The interest
rate in our country was frequently and large scale changed, and has it the function to the economic
growth in what direction and in the great degree?
4 Empirical analysis of marketlization of interest rates and economic growth
Following the domestic economy high speed development, our country carried on the reform of
marketlization of interest rates, The long-term and high speed development in developing country
economy will definitely cause its economic structure to have the big ratio change, From this, the
economic equilibrium mechanism will have some change, but the marketlization of interest rates reform
should also adjust with the tendency that the economic equilibrium mechanism are transforming at
present, Therefore we should use the partition measurement method in the empirical analysis process to
analysis the economical influence of different period bank rate policy, in the factor analysis, we chooses
these influential role factor to our country economic development, which can point out the emphasis that
the bank rate policy should play from now on.
4.1 Factors selection
The government, through the interest rates liberalization reform, raises the efficiency of finance
resources deployment, reasonably uses financial resources, advances finance development, and makes
the financial development and the economic development adapt. Therefore we must regard the
economic development function from the bank rate policy (specially the real interest rate level), at
analyzing the relation between interest rates liberalization and the economic growth. Not only the
financial development influences economic development, but also the human capital and state-of-art,
economic structure, finance level of development also limits it. Therefore we must considerate the above
factor, when choice explanatory variable for carrying on the measurement analysis.
Therefore GDP rate of increment G is selected as the explanatory variable, for the independent variable,
we choose the real interest rate R−1 to represent the bank deposit actual rate of return, use it to
determinate the influence of this year economic growth from the last year real interest rate level,
financial deepening target M 2/GDP to represent the financial overall level of development, HR/K to
represent the influence of the capital efficiency from the technology advancement, thinking the key role
of economic development from human capital and technology advancement, the non-state economy
440
fixed asset investment cost and entire social fixed asset of investment cost ratio I to express the
influence of the investment efficiency from the economic structure, because state economy's investment
efficiency is far lower than the non-state economy's in our country economic structure, personal savings
deposit S to represent the bank credit creation ability. The measurement formula is as follows:
G = β0 + β1R−1 + β2M2 / GDP + β3HR / K + β4I + β5S
4.2 Stages analysis
Since the reform and open policy, there has had the tremendous change in our country economic domain
and the financial domain, especially each kind of change in the late of 90s, adopting the method by
stages measurement analysis, we can more accurately describe each explanatory variable which can
bring the economical influence and the change tendency with the mathematical model. Measurement
analysis result following table:
Tab.1 β i measurement analysis result
－
－
1980 1996
1997 2007
－
－
β1
β2
β3
β4
β5
0.561
0.047
0.015
-0.001
0.2057
2.0306
0.2807
0.43
0.160165
-0.1887
β0
－
14.06
-19.38374
Tab.2 Measurement analysis result relating examination
2
D.W
F
R
0.659
2.981
4.256
1980 1996
0.986
3.457
14.22
1997 2007
Data source: China statistical annual in 2007, Chinese finance yearbook related year data and New China 50 year
statistical data assembly.
4.3 The analysis to the measurement result
We are possible to obtain the following conclusion according to the comparison from the above
empirical analysis result:
1 Technology advancement and education investment played very important function for economical
development, looking from the comparison result, the human capital investment and the technology
advancement played more and more major function for our country economic development, which
indicated the transformation from the extension economic growth way to the intensive economic growth
way for our country economic growth way, which requests government should enlarge investment
dynamics for the education and scientific research.
2 The function of non-government property economy for economic growth is enlarging, since the
reform and open policy, the non-government property economy, relying on the nimble management
mechanism, is rapidly growing under market economy environment, and the scale expands unceasingly,
which plays an irreplaceable function for our country economic development. To develop the non-state
economy has the significant strategic sense for the economical development.
3 The real interest rate and economic development is inverse correlation, this result complies with
Han Tingchun and so on domestic scholar measures the result, the promoter action's attenuation of our
country real interest rate regarding the economy has the significant relations with our country economic
equilibrium mechanism transformation, which explained that our country interest rate marketlization
reform is not adapt to the economic development, which requests Commercial bank have the sober
understanding regarding the change of economic structure, and fully deal each kind of risk with the
fixed price power.
4 Savings ratio and economic growth is inverse correlation, with the development of our country
economic and the more and more enhancement of living standards, and the sole channel of the resident
invests and the motive influence of the preventive deposit, which causes our country personal savings
remaining sum to climb successive years, however the inverse correlation between our country deposits
（）
（）
（）
（）
441
with GDP grows explains that the sufficient deposit resources have not obtained the reasonable use,
there is the obstruction in the conversion process from the deposit to the investment, the low efficiency
of financial facilitating agency as providing the financial service is the very important reason, moreover
the inverse correlation of M2/GDP and the economic development is also to show this question from the
side.
5 Conclusion and policy suggestion
Through the above empirical analysis, we may obtain the financial reform is not adapt to the economic
development, which has created the promoter action attenuation of our country interest rates
liberalization reform regarding the economic development, This question already becomes the barrier of
our country economy continue and healthy development, simultaneously, which has also provided a new
space for our country financial reform, in order to promote the financial reform and make its display
biggest potency promote the economic development, we should take the following measure:
5.1 We should vigorously develop policy-type finance to promote economic development
The policy-type finance is a financial organ which has both financial and the Commercial bank
characteristic mechanism, since being established, which plays very major function in the economic
development. But the function, comparing with the developed country policy-type financial organ
display, still exists many being promoted, thinking the measurement analysis result in this article, the
policy-type finance should play its role from the following two aspects:
1 Enlarging the research and development and the investment of education, through the front
measurement analyzing, we discover that the human capital and the technology advancement play the
biggest role to the economic development, the reason is the growth pattern change in our country
economic, but the education and research and development's investment, specially the research and
development in the foundation scientific research domain and elementary education's investment, has
not the high internal economy benefit, and the investment risk is big, the capital pay-off cycle is long,
which is the remarkable public goods characteristic, this does not meet Commercial bank's requirement,
this request policy-type financial organ provide the fund for human capital's promotion and the basic
science domain research and development. Therefore our country should strengthen the policy-type
finance to invest for the human capital and the research and development, and make it display
inductivity function and expanding function in emergent industry.
2 Strengthening the investment efforts of policy-type finance for State-owned business, the
State-owned business has the important economy and the political significance regarding our country,
but the State-owned business also truly have some questions such as the low investment rate of return,
the investment effect rate difference, the heavily invest turning the precipitation cost, the policy-type
finance should expand the investment in the foundational industry to display its direct prop and the force
advancement function.
（）
（）
5.2 Enlarging the investment dynamics of non-state economy
From the front analysis, we may see the non-state economy is playing bigger and bigger promoter action
for the economy, with the non-state economy swift development, its investment wish is also gradually
strengthening, but the financing channel influences its development, state-owned business's loan
occupies the above 75% of bank loan amount, This kind distortion's resources deployment has
constrained the huge propelling force from the non-state economy for the economic growth, and has
restricted the economic development, moreover the non-state economy mainly distributes in the
department of high internal direct economic efficiency and exterior indirect benefit, which meets the
material culture need of the populace grow day by day, and has the irreplaceable function at promoting
the national life level.
5.3 The interest rate level should be maintained at the moderate low interest rate level
Our country economic equilibrium mechanism has had the archery target change, by the late 90s, our
442
country economy are gradually becoming the demand restraint economy, the performance is that the
supply exceeds the demand for the traditional industry product, the investment profit of enterprise is low,
and the investment demand is insufficient in the industry, This kind of condition is similar with the
stagnant economy's situation proposed by Keynes, in this case, raising the real interest rate will
definitely to increase the enterprise burden, will cause the investment wish to drop in enterprise, affect
the economic development and the social stability, Therefore, under the premise in breaking “the system
of ownership discrimination”, the moderate low interest rate is helpful to the stimulation investment, and
it can provides the strong power for our country economic development.
In brief, facing the transformation of economic equilibrium mechanism, we should make adjustment for
the interest rates liberalization from a whole and a profession. In as a whole, we should make the interest
rate and the economical match from the overall situation; we should adjust nimbly in the profession to
control the development of the profession, for example the present adjustment to real estate profession,
so we can achieve the twice the result with half the effort effect.
Acknowledgements:
*This research is supported by the innovation fund of Daqing High-Tech Industrial Development Zone
(DQGX07YF016)
Author—SUN Wei: Postgraduate candidate of North-east Agricultural University, Professor of
Heilongjiang Bayi Agricultural University
Communication author—MENG Jun: Postgraduate candidate teacher of Northeast Agricultural
University
References
[1]. Wu Jun. Transition Economy and the Effectiveness of Monetary Policy. Journal of Shanghai
University of Finance and Economic, 2004 2 :12~19 (In Chinese);
[2]. HanTingcun. The Financial Development and Economic Growth: The Empirical Analysis Basing
on China. Economic Science, 2001(3):31~40 (In Chinese);
[3]. Chen Liuqin, Zeng Qingjiu. Theory of the Relationship between China s Financial Development
and Economic Growth and an Empirical Study. Finance Forum , 2003(11):2~7 (In Chinese);
[4]. Deng Zilai, Li Yansong. Functional Financial Theory and Stability and Efficiency of China’s
Financial System. Finance Forum, 2004(10):16~20 (In Chinese);
[5]. Li Guangzhong. On China’s Real Interest Rate and Investment. Journal of Sun Yasten
University(Social Science Edition), 2000(1):89~95 (In Chinese);
[6]. Yao Lingzhen, Wang Shuhao. Bank Rate Policy and Investment under the “Market Mechanism”
vacancy. Quantitative & Technica Economics, 2003(11):132~136 (In Chinese);
[7]. Yang Jiangna. The Empirical Analysis of the Influence Our Country Rate on Loan to the Fixed
Assets Investment. Market Modernization, 2007(6):180~181 (In Chinese);
[8]. Zhao Tianrong, Zhao Rui. An Empirical Research on Relationship between Interest Rate
Adjustment and Economic Growth. Shanghai Finance ,20008(8): 11~14 (In Chinese);
[9]. Zhao Yucheng. The Substantial Research on the Effect of the Interest Rates Change to the Listed
Company. Economy and Management, 2006(2) 79~82 (In Chinese);
[10]. Evans P1.1985, Do Large Deficits Produce High Interest Rates P. American Economic Review, vol
1751;
[11]. Barro R1.1987,Government Spending, Interest Rates, Prices, and Budget Deficits in the United
Kingdom, Journal of Monetary economics, vol 1201;
[12]. A.Sinan Cebenoyan, Philip E.Strahan “Risk management, capital structure and lending at banks”
Journal of Banking & Finance, 2004 (28):19~43.
（）
：
443