The Research on the Operating Situation of China’s Real Interest Rate Based on the Three Regimes Markov-switching Model

Abstract

Since Chinese government implemented interest rate liberalization reform, the level of interest rate has aroused widespread concern from all walks of life. In this paper, we divide the state of China’s real interest rate into three different regimes: low level interest rate regime, medium level interest rate regime and high level interest rate regime. Then we apply three regimes Markov-switching Model to explore the operating situation of China’s real interest rate. The result of empirical research indicates that low level interest rate and high level interest rate are not significant in our country and medium level interest rate is significant and has a long period of duration.