Abstract
As the adjustment space of China’s monetary policy is gradually expanding and the adjustment intensity is gradually increasing, the influence of external factors on money supply and demand is gradually weakening. The endogenous mechanism of interest rate in the real economy needs to be further explored. Through the long-term interest rate model, the paper reveals the relationship between the circulation status of real economy and long-term interest rate. Based on the monthly data of China from 2003 to 2019, the paper establishes the error-correction VEC model and the state-space model to conduct empirical test and analysis on the influence mechanism of long-term interest rate. The final results show that exogenous factors such as monetary policy have certain influence on interest rate in the short run, while in the long run, interest rate is affected by the average circulation of goods described by the inventory increment of manufacturers and the actual production input of enterprises.
Highlights
Literature reviewMoney supply and demand determine interest rate, and the endogenous and external nature of interest rate essentially depends on the endogenous and external nature of money supply and demand
The long-term interest rate model reveals the internal relationship between the circulation status of the real economy and the long-term interest rate
Taking the data of China from 2003 to 2019 as an example, this paper conducts an empirical analysis on the influence mechanism of the long-term interest rate by constructing the error-corrected VEC model and the state-space model
Summary
Money supply and demand determine interest rate, and the endogenous and external nature of interest rate essentially depends on the endogenous and external nature of money supply and demand. Keynesian theory of money supply endogenous including levels after socialist theory, structuralism, circulation, they think money demand in the financial market determines the central bank, the money supply, Davidson, from the perspective of the portfolio, that money supply is endogenous, thinks that there are endogenous financing needs, money is in the nature of capital, has the function of production, so the money supply is based on the real economy needs, is an endogenous, after but the Keynesian monetary demand into the internal and external influence interest by nature[6]. By taking the real economy as the scope, this paper will deeply explore the endogenous formation mechanism of interest rate, take the inventory increment of manufacturers and the production input of enterprises as the research object, and establish the interest rate determination mechanism model of endogenous money supply and demand in the long term.
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