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The Study on the Equilibrium Interest Rate
Pages: 37-44
Year: Issue:  3
Journal: Xi'an Finance

Keyword:  equilibrium interest ratemeasurement approaches comparisonpath selection;
Abstract: The paper calculates the equilibrium interest rate from two perspectives of long term and short term. Considering the reality of dual-system of interest rates, we measured the long-term interest rate from three angles such as the potential output, marginal returns to the capital and intercept term of the Taylor rule respectively, and found that the three results converged. Moreover, with the modified Taylor rule, we found that the measurement results of the equilibrium interest varied under different policy objectives. The equilibrium interest rate has closely related with the macro-control objectives. The equilibrium interest rate is lower when only output is pegged, and the equilibrium interest rate is higher when both output and price are pegged. For the short-term interest rate, with VAR model and state space model, we analyzed the relationship between the interest rate gap and prices, and found that CPI increases rapidly when the real interest rate is lower than the equilibrium interest rate and vice versa. Based on above analysis, we raise that the evolution path of the equilibrium interest rate in China is to unify the segmented interest rate market, to form a unified market-oriented interest rate pricing mechanism by influencing main factors in the process, and then promote the information of China’s general equilibrium interest rate.?
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