Research On The Relationship Of The Key Macro-economic Variables And The Term Structure In China

Since the 1990s, foreign scholars began to pay attention to the relationship of the term structure of interest rates and future economic growth, inflation and interest rates and other monetary policy goals. Empirical studies are related to two aspects: First, the forecast capacity that the term structure of interest rates have to predict economic growth, inflation and interest rates and other macroeconomic variables future movements; Second, the role that the term structure of interest rates play in the monetary policy. With the advance of market-oriented interest rates, enhancement of interest rates in the allocation of resources, it has practical significance to the study on the economic information contained in the term structure of interest rates. Therefore, this paper studies the relationship between the key macroeconomic variables and the term structure of interest rates.The full text is divided into five parts:The first part is the review of the term structure of interest rates.The term structure of interest rates is a curve which is composed of some point to the different duration of the interest rate, also known as the yield curve. The traditional theory of the term structure of interest rates focuses on the shape and form of the yield curve including the expectation theory, market segmentation theory and liquidity preference theory. With the depth of research, foreign scholars have begun to focus on policy implications of the term structure of interest rates. Term structure of Interest rate has a very important significance to the central bank's monetary policy. First, the term structure of interest rate provide a more complete and comprehensive information to the central bank's macro-control than which to the short-term interest rates. Second, the term structure of interest rate reflects the market's expectations for future short-term interest rates. The study is mainly related to the relationship of the term structure of interest rate and economic growth concerns, inflation and interest rates.The second part is the theoretical foundation of the key macroeconomic variables and the term structure of interest rates.The economic theories such as Phillips curve, IS curve and Taylor rule explain the relationship between interest rates and macroeconomic variables from different perspectives. According to theoretical rational expectation model which integrate these theories, the expression of the relationship between macroeconomic variables and interest rate term structure can be derived, and the relationship can be analyzed on the foundation of theory. Theoretical rational expectation model consist of three main components: (1) Small-scale macroeconomic model. The dynamic model describes the relationship of economic growth, inflation and interest rates from the aggregate supply and aggregate demand. (2) Monetary policy model. Monetary policy model include monetary policy reaction function and monetary action function, and it describe the monetary policy rule. (3) Interest rate term structure model. Interest rate term structure model include expectation theory model and Fisher formula, it describes relationship of long and short term interest rates and the relationship of real and nominal interest rates. The various economic factors in economic systems have a direct or indirect impact on the financial markets, thus the term structure of interest rates affect the formation. The financial markets in turn affect, directly or indirectly, enterprises, individuals and the whole economic system through the flow of funds.The third part is the empirical study of the key macroeconomic variables and the term structure of interest rates.This paper will refer to the domestic and abroad research fruit, and use the vector autoregressive model affine term structure model (VAR-ATSM) which includes economic growth, inflation and interest rates under the same framework of to research the relationship of China's economic growth, inflation interest rate and term structure. VAR-ATSM can be explained as the VAR model under the assumption of no-arbitrage or the ATSM with factors follow VAR process. Predictive value of interest rate with VAR-ATSM fit the real value well, and the predictive value under the time-varying premium assumptions is better than that under the time-invariant premium assumptions. According to the empirical result, the spreads of longer interest rates have weaker predictive capability of economic growth and inflation in short time, but having stronger predictive capability in longer time. And the predictive capability of interest rate is reverse. Economic growth, inflation and short-term interest rates have different impact on interest rates in a short time and same impact in a longer time. Economic growth, inflation and interest rates impact have positive effects to different term interest rate. Economic growth, inflation and short-term interest rates have different impact on term spread in a short time and same impact in a longer time. Economic growth and interest rate impact have positive effects to different term spread, and inflation impact has negative effect to different term spread.The forth part is the inspiration of the key macroeconomic variables and the term structure of interest rates.The practice abroad results show that it is feasible to take interest rate term structure as a leading indicator, which can constitutes the part of the performance index. China's current main instrument of economic forecast is still all kinds of economic climate indexes. Therefore, we can weave economic climate index making use of suitable term spreads, and it is a more effective approach to use the current economic information of the interest rate term structure.Seen from the central bank's monetary policy development, the monetary policy has been more and more simplified as the policy on the interest rate. Hence, the term structure of interest rates has become an important manifestation of the monetary policy trend. Monetary policy transmission mechanism begins from short-term interest rates, and the ultimately acts on economic growth, inflation and other economic variables, but the changes of the economic variables are dependent on the long-term interest rates. Therefore, the changes in the long-term and short-term structure of interest rates may reflect to certain extent whether the monetary policy transmission mechanism is smooth or monetary policy is effective.