Micro foundation analysis of interest rate policy in China

Abstract

In recent years, central bank utilizes interest rate policy more strongly and more frequently. It is general concern in market whether the policy tool can perform actual transmission function across all economic procedures as expected. This issue in transmission channel is also the focus people always argue about. This article analyzes the Micro foundation of interest rate policy, which is savings and investment reflection to the interest rates based on quarterly data from 1996 to 2008, and then concerns the validity of the interest rates policy in different economic cycles.