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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. 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