Study On The Optimal Interest Rate Rules Included In The Asset Price Factors

In20years before the financial crisis, Global economy has experienced a high growth with low inflation golden period of development. Many economies have successfully controlled the inflation and maintained a low and stable inflation. At the same time, this does not at the expense of economic growth. Employment rate rose steadily around the world, people’s income increased, GDP grow steadily. However, in2008, the financial crisis triggered by the U.S. subprime mortgage crisis swept the world. Whether the developed country with a mature market or the developing country an emerging market have failed to escape out of the huge impact by the financial crisis. The problem can not be ignored and even more attention was given. Can government continue to tolerate the excessive volatility in asset prices without taking any measures? Does monetary policy still only take measures on output and inflation volatility?At present, foreign scholars have discussed whether the monetary policy need to take measures to forexcessive volatility of asset prices. And some research on asset price factors into the optimal interest rate rules have been done. Domestic scholars on this issue relatively lately start, and research is also relatively small. And most domestic and foreign scholars on the interest rate rule assumes the existence of this rule on the basis of empirical research, and not deduced from the theory of interest rate rules. This article first deduced from the theory of optimal interest rate rules included inthe asset price factors, based on the use of China’s actual economic performance data, the empirical analysis.First of all, I have combed the literature on whether asset prices factor into th e areasof monetary policy considerations, and summarizes the results of research a t homeand abroad, put forward the asset price factors should be included in the stud y ofthe optimal interest rate rules, on this basis thatthe full text of research metho ds and ideas. Second, with a looking back closed macroeconomic model to join t he asset price factorsas the theoretical basis by the Central Bank’s intertemporal los s function deducedtheoretically optimal interest rate reaction function ofthe centra I bank’s monetary policy.In this paper, asset prices factors that should be included inthe subject of monetary policy as a starting point, an looking back closed ma croeconomic models that added a type of asset price factors as the theoretical basi s, through the Central Bank of intertemporal loss function we derive the theory o f optimal monetary policy the central bank’s interest rate reaction function. I theor etically proved that the presence of wealth effects, when asset prices higher than its intrinsic value, the central bank should raise interest rates to curb theexcessive ris e in asset prices. On the contrary, you should cut interest rates. This expands an d complements the theoretical studies in this research area. The same time, with t he quarterly data for2001-2010for the sample, we use of a VAR model to analyze t he relationshipbetween interest rates.output, inflation and asset prices. Then, we according to the relationship between interest rates and asset prices empirical anal ysis to selecte the stock price as the asset price in China on behalf of, included i n the study of the optimal interest rate reaction function. We estimate best China’s m onetary policy reaction function weights of output, inflation and the asset prices. On this basis, this paper compares the trend of the gap with China’s economic flu ctuations in thebest interest rates and central bank to set interest rates, and find th at China’s interest rate policy’s inadequate response is one of the reasons for Chi na’s economicfluctuations. Finally, based on the empirical results of previously su mmed up the conclusions,consider the actual situation of China’s current and futur e direction of the premiseput forward some policy recommendations.