The Analysis Of The Relation Between The Lower Interest Rate Policy Of America & Japan And The Capital Asset Bubbles

Since the first Chinese stock market came into being in the 1980s, stock markets in China have gone through many ups and downs which are indicative of a very unsteady development. Even in 1991, a period in which the stock prices dropped sharply in the worldwide markets, however, The P/E (Price/Earning) Ratio of the stock markets of China still surpassed the international standard greatly. Therefore, after Chinese stock markets have developed for more than ten years, there are still many problems existing in the market system, and all the rules and regulations are far from being mature. Besides, such important factors in the real estate market as the housing price income ratio, the housing vacancy rate, and the rental income ratio are far more exceeding the international standard and the warning line delivered by the World Bank, but the house prices in China are still roaring at present, indicating that there are already some bubbles appearing in the real estate market in China, and that the bubbles are getting bigger. The unsteady stock markets and the rocketing prices of houses in China are two major hidden problems which could endanger our economic development and which could possibly bring about serious financial crisis in the future. In order to seek out solutions to these problems and to provide some suggestions for the making of the currency policy and interest rate policies in our country, this dissertation is to make a contrastive study of the shaping and bursting of the capital asset bubbles in the United States and Japan by comparing and analyzing respectively the effects brought about by the interest rate policies adopted by the two countries for the purpose of avoiding and regulating capital asset bubbles, to draw a lesson from their experiences, and to put forward specific strategies that is formed on the basis of a detailed analysis of the monetary policy, the stock markets, and the real estate markets in China. The paper includes five Chapters.Chapter one gives a general review of the theories involved in the whole process of the discussion, mainly focusing on the characteristics of the interest rate, the monetary policy of Keynes, IS-LM Model on base of the Keynes's theory, Tobin's Q domino offect, Modigliani's consumed fortune domino affect and M.J.Gordon model. The purpose of the review is to provide a theoretic foundation for the analysis in the following chapters and to explicate the reason for the currency policy in response to the fluctuation of the capital asset prices.Chapter two centers on the relation between the lower interest rate policy of America and the capital asset bubbles in the 21st century, by first analyzing the features of the high-tech stock bubbles and the real estate bubbles, transferring to the analysis of the effects of the interest rate policy on the bubbles in the stages of bubble-forming and bubble-bursting, summarizing the theoretic principles on the basis of which the U.S.A. adopted such interest rate policies, and making clear the merits and demerits of such expanded currency policy with respect to its influence on the capital asset bubbles.Chapter three is about the relation between the interest rate policy of Japan and the capital asset bubbles at the end of the 1980s, analyzing the features of the capital asset bubbles and the effects of the interest rate policy on the bubbles in the bubble-shaping and bubble-bursting periods, and concluding the role played by Japan's such lower interest rate policy in the process of curbing the capital asset bubbles.Chapter four makes a contrastive analysis of the experiences of America and Japan in dealing with the capital asset bubbles from two perspectives: the effects brought about by the lower interest rate policies and the validity of the monetary policy. The first part of this chapter states the similarities and differences between the interest rate policies of the two countries, analyzes the different effects of such policies on controlling the capital asset bubbles, and digs up the main causes that have a bearing on the final effects.Chapter five is about what we can learn from experiences of Japan and the United states, first analyzing the current state of the monetary policy in China and the present situation of the Chinese stock market and the real estate market, and finding out why the present monetary policy doesn't work well enough to solve the problem of economic bubbles in the stock market and the real estate market. Then taking into consideration the current political system and the present situation in our country, by drawing upon the experiences of Japan and the United States in handling the capital asset bubbles, we propose several helpful, significant solutions to the problems existing in our country's economic development, such as perfecting the monetary policy, making use of the interest rate policy to the fullest extent in regulating the economy, strengthening the macro-regulation of the government, making the stock market and the real estate market become the major conveyor of the economy, setting up a Capital Asset Prices Fluctuation Monitoring System that is not only responsible for the adoption of currency policy but also able to reflect the fluctuation of the asset prices, building up public confidence in our policy, and intervening into the economic development at some critical moment so as to eliminate the capital asset bubbles instead of taking some compensatory measures to reduce the damage brought about by the bursting of the bubbles.