Abstract

As the price of currency and borrowing costs,the interest rates affect savings,investment,balance of payments and the stability of the currency in open economy.Therefore,it is essential to the healthy development of the economy.Negative interest rates indicate that real interest is negative,which is not conducive to effective allocation of social resources by distorting the price of money and promoting investment growing too fast with asset price bubbles and inflation.With the acceleration of economic integration and the process of financial globalization,negative interest rates which distort economic pat-terns tend to be global,long-term and normal.This has severely affected the sustainable development of China's economy.As a result,its solutions and policy path have a high level of practical significance.

Based on this background,the basic objective of the thesis is studying on the mechanism of negative interest rates and monetary policy to examine the impact of negative interest rates on China's economic development and also aiming to provide the theoretical basis of interest rate marketization through a system of theoretical and empirical analysis.Around this theme,this research focused on the following problems:Firstly,what is the motivation of Central Bank to control interest rate,and what kind of rational policy tool do negative interest rates reflect;Secondly,what effect will negative interest rates put on economic development of China(according to this question,the article select four main factors in economic development of China,which are savings,investment,international payments and currency stability);Thirdly,how to judge the effect of negative interest rates on economic development of China,is advantages over disadvantages or the other way round,and whether its findings will support the reform of interest rate marketization;Fourthly,how to adjust monetary policy and promote the reform of interest rate marketization if the conclusion supports interest rate marketization.The specific sections are as follows:

The background section describes the introduction of nega-tive interest rates,the ideas,structure,researching methods and data sources of the paper.

Chapter I describes the relevant theory on negative interest rates and economic development,analysis evolution and new development of research on negative interest rates at home and abroad,and introduces what challenge should the paper solve and what the innovation is,and then submits analysis framework and studying logic.

Chapter II studies the relationship between negative interest rates and economic growth in China,showing that negative interest rates have been hurt economic growth.Experts have two completely different views on the relationship between them.This paper analyses both positive and negative effects in details,and raises the combined results.Empirical studies have found that in China's special economy,effect of negative interest rates is not consistent with the general theory of international interest rates.Negative interest rates have both positive and negative effects on economic growth and we should analyze different economic conditions separately.According to the data of China economic development(1953-2012),negative interest rates have damaged economic growth on the whole.

Chapter III researches relationship between negative interest rates and savings,and points out that savings have rigid interest rate.This chapter examines extraordinary growth of residents'savings with negative interest rate.Through empirical analysis the author has found that the effect of negative interest rates on residents'savings is not significant,and national income is the major factor affecting residents'savings.This chapter studies the saving problems through wealth effect channels,believing that interest rate can change the value and proceeds of personal wealth,direction of the savings changes simplified to be combined results of wealth value and wealth proceeds.From the aspect of system factors,this paper discusses Chinese featured transition economic physical factors,including economic system reform and changes,unreasonableness economic and financial structure,imperfect social security system,and uncertainty expectation.

The fourth chapter studies the relationship between negative interest rates and investment,and believes that negative interest rates will expand the scale of investment and lower the return.Mr Dragon-Shaw models,Karp-Matheson model and Molho models agree that higher real interest rates can expand the scale of investment in developing countries.Through empirical analysis,the author finds that negative interest rates play a significant role in country's investment scale and efficiency,expanding the scale while reducing the benefits.The paper argues that negative interest rates deny the filtering of interest rates on investment projects.In order to effectively promote investment efficiency,we should not only deregulate interest rates and disarm of negative interest rates,but also base on the marketization and standardization of the whole economic and financial system.There-fore,speeding up the process of interest rate marketization is the only reasonable option,only the market system replaces the traditional one and lets the market mechanism of interest rate play a leading role in the process of decision-making and the allocation of investment resources,can we get rid of the dilemma of investment scale and efficiency.

The fifth chapter mainly examines the relationship between negative interest rates and balance of payments.The author found negative interest rates will reduce the current account surplus,expand capital and financial account surplus,and lead to further imbalance of international payments.From the perspective of transmission mechanisms,negative interest rates have an impact on the current account through the exchange rates and price channels;have an impact on the capital and financial account through short-term and long-term funding channels.The author believes that the impact of negative interest rates on international payments through exchange rate channels is limited because interest rate parity does not established.However,that through price channels is clear,so negative interest rate will upgrade export products price,and weaken competitiveness of export products in international market,leading to reduced current account surplus.Effect of negative interest rate on short-term and long-term funds results from integrated factors,which has uncertainty and needs more specific analysis.Through vector autoregressive models,impulse response function,Granger causa-lity tests,multiple linear regression analysis etc,the author found that improving the actual interest rate has the positive impact on current accounts and negative impact on capital finance accounts,that is the negative interest rates will impede the import/export trade,international capital flows,and worsen the balance of payments imbalances.

Chapter six studied the stability of relationship between negative interest rates and currency.This article believes that monetary stability should include price stability,exchange rate stability and asset price stability.Through empirical research,the author finds real interest rate and CPI have rendered a clear negative correlation,and negative interest rates will lead to inflation.Effects of negative interest rates on exchange rates include three channels which are current account,capital projects and asset conversion.Before 2005,real interest rates have little impact on the exchange rates because of the exchange rates only pegged to US dollar.After the reform,exchange rates have been more market-oriented,and its relationship with real interest rates has been increasingly stronger,but with lag effects.Effects of negative interest rates on asset prices have two major aspects.First is its correlation with stock prices.Empirical analysis indicate that negative interest rates lead stock price index to decline,contrary to the conclusions“higher interest rates,lower stock price”,which is due to our special circumstances.Second is its correla-tion with house prices.Negative interest rates lower funding costs for developers and loan costs of home buyers,which contribute to the supply and demand in the property market,and contribute to the rise in real estate prices.

The seventh chapter summarizes the conclusions,points out half economy marketization,and provides theoretical support for the marketization of interest rates.Policy recommendation aims at marketization of interest rates,which is the best way to solve current economic problems.In the end,the author proposes policy recommendations on macro-prudential supervision,strategic steps,and the reform measures.

Key words:Negative interest rates；Economic development；Marketization of interest rate