The Research On Estimating The Equilibrium Interest Rate Under The Open Economy

Equilibrium interest rate is the rate when the market is balanced, it can provide a reference for the formulation of the economic policy. therefore, Based on the interest rate structure under China’s current monetary policy as well as the current situation of the interest rate marketing, we use two methods to estimate the equilibrium interest rate in China, one is based on the calibration estimation method in a closed economic system, the other is based on the state space model estimation method in an opened economic system, after the comparison, found that the method based on open economy can be better describe the equilibrium level of interest rates in China.Use the equilibrium interest rate to analyze the impact on the macroeconomic. Firstly, we studies the degree of imbalance in nominal interest rates, the result shows that China’s nominal interest rates had deviated the equilibrium interest rate more or less, involving the greatest deviation on the year 2010 to the year 2013,but overall, the nominal interest rate fluctuations around the equilibrium interest rate. Secondly, we analyze the equilibrium interest rate’s impact on the monetary policy, through establishing the VAR model involves the equilibrium interest rate, the broad money supply M2, the real output and the inflation, according to the impulse response graph to measure the response of other variables by the changing of the equilibrium interest rate. After the analysis, it concludes that when the equilibrium interest rate increases, expansionary monetary policy should be adopted. If the equilibrium interest rate decreases, tight monetary policy should be adopted.