Interest Rate Determination in China: Past, Present, and Future

Research, Hong Kong Institute for Monetary and Financial

doi:10.2139/ssrn.2398801

Cited by 23 publications

(23 citation statements)

References 23 publications

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“…As we show in the paper, only the first condition taken separately -namely, the relation between the interest rate and potential GDP growth rates -meets one of the definitions (namely, the first definition) of the equilibrium interest rate. 12 Therefore, to estimate the equilibrium interest rate over the long term, we focus on this correlation first, and, in addition to calibrating it, we estimate the panel regression of the relation between the interest rates and percapita GDP growth rates (see, for instance, He et al, 2015;Hamilton et al, 2015).…”

Section: Estimates In Semi-structural Modelsmentioning

confidence: 99%

Estimates of the Natural Rate of Interest for Russia: Is Navigating by the Stars Useful?

Porshakov¹,

Sinyakov²

2019

RJMF

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We estimate the natural rate of interest for Russia in the short term and long term using three definitions of the rate and discuss the possible implications of the results for monetary policy. To start with, we consider partial equilibrium (under no-arbitrage condition), which is presented in the papers on estimating the natural rate. The estimates turn out to be extremely sensitive to assumptions about model parameters. The estimates based on the uncovered interest rate parity, though dependent only on observable (market) variables, impose an additional strong assumption of the path of the future equilibrium exchange rate. We supplement these calculations with calculations in panel data (for long-term equilibrium) and using semi-structural methods (for current equilibrium). To get estimates according to the strict definition of the natural rate we estimate a real business cycle model of the resource-based economy with investments using Russian data. All the estimates are highly uncertain. Taking into account the latter, the central bank should use robust monetary policy rules and avoid communicating the natural rate at least until there has been a sufficient history of business cycles in Russia.

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Section: Estimates In Semi-structural Modelsmentioning

confidence: 99%

Estimates of the Natural Rate of Interest for Russia: Is Navigating by the Stars Useful?

Porshakov¹,

Sinyakov²

2019

RJMF

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“…These studies differ significantly regarding time span, data frequencies, modeling, and methodological aspects, their findings being thus mixed but generating significant discussions due to policy implications. On the other hand, Goh and Alias (2002) and Ahmad and Karim (2011) study the determinants of interest rates in Malaysia, Ahn (1994) focuses on Korea and Singapore, while He et al (2014) study interest rate determination in China.…”

Section: Theoretical Background and A Brief Literature Reviewmentioning

confidence: 99%

Monetary and fiscal factors in nominal interest rate variations in Sri Lanka under a deregulated regime

Maitra

2017

Financ Innov

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Background: This paper examines the role of monetary and fiscal factors in interest rate variations in Sri Lanka under its deregulated regime of interest rates. In addition the paper also examines the role of monetary factors in the variation of interest rates, using a quarterly dataset for the post-global recession period, when the exchange rate is determined by market forces. Results: Empirical analysis uses a dataset of nominal interest rates, money growth, income growth, changes in nominal exchange rate, and budget deficit. From the methodological point of view the paper involves vector autoregression model and Wald tests of Granger causality, followed by impulse response analysis while stationarity and the order of integration of the selected variables are confirmed involving the augmented Dickey-Fuller and the Phillips-Perron unit-root tests. Results: The paper confirms that both monetary and fiscal factors have significant effects on the variations of interest rates. Money growth triggers an increase in interest rates, which supports the Fisher equation view, while income growth has a negative impact. Budget deficit causes a rise in interest rates, but the role of the exchange rate is found to be almost insignificant, probably due to including exchange rate series that cover both the pegged and market-based regimes of exchange rates. The second part of the analysis, using a quarterly dataset for the post-global recession period, further establishes the positive impact of M2 money growth and income growth on interest rates. In this case, exchange rate depreciation causes an increase in interest rates.

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“…For instance, an analysis by He et al . (2014) suggests that equilibrium real interest rates of the renminbi are likely to rise by 2–3 percentage points if restrictions on interest rates are removed.…”

Section: Would the Renminbi Be Used For Investing And/or Funding?mentioning

confidence: 99%

Internationalisation of the Renminbi as an Investing and a Funding Currency: Analytics and Prospects

Luk

Zhang

2016

Pacific Economic Review

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This paper develops a three-currency model to study the determinants of the demand for assets and liabilites denominated in an international currency and to shed light on the prospects for the renminbi as a budding international currency. We show that interest rate differentials would be only one of the factors shaping the renminbi's position, while other factors, including the correlation between foreign countries' economic growth and their bilateral exchange rates against the renminbi, and the correlation between exchange rates of the renminbi with other international currencies, would also be important. A broad interpretation of these findings is that the renminbi will likely be attractive to investors from high-income economies and fund-raisers from emerging market economies.

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Interest Rate Determination in China: Past, Present, and Future

Cited by 23 publications

References 23 publications

Estimates of the Natural Rate of Interest for Russia: Is Navigating by the Stars Useful?

Estimates of the Natural Rate of Interest for Russia: Is Navigating by the Stars Useful?

Monetary and fiscal factors in nominal interest rate variations in Sri Lanka under a deregulated regime

Internationalisation of the Renminbi as an Investing and a Funding Currency: Analytics and Prospects

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