Interest Rate and Some of Its Applications

Interest rates are a fundamental aspect of the economy and have a significant impact on various financial decisions such as borrowing, investing, and saving. They are the cost of borrowing money or the return on investment and are determined by various factors such as the supply and demand for credit, inflation expectations, and monetary policy decisions made by central banks. Changes in interest rates can have a major effect on the economy and can influence consumer spending, business investment, and overall economic growth. This makes it crucial for individuals, businesses, and policymakers to have a clear understanding of the dynamics of interest rates. Interest rates play an important role in determining the cost of borrowing money for individuals and businesses. A rise in interest rates can increase the cost of borrowing and make it more difficult for people and companies to access credit. This can lead to a decrease in consumer spending and business investment, which can slow down economic growth. On the other hand, a decrease in interest rates can make it easier for individuals and businesses to access credit and increase consumer spending and business investment, boosting economic growth. Central banks, such as the Federal Reserve in the United States, play a key role in determining interest rates by setting monetary policy. They use interest rate changes to influence the economy and reach their goals of stable prices, maximum employment, and moderate long-term interest rates. In conclusion, understanding the dynamics of interest rates is essential for making informed financial decisions and assessing the overall health of the economy. The impact of interest rates on the economy and individual financial decisions is far-reaching and long-lasting, making it a crucial topic for continued study and discussion.

Causes of Inflation in China:Inflation Expectations

This paper argues that the main causes of inflation in China since the early 21st century are changes in the public＇s inflation expectations. The conventional wisdom, the quantity theory of money, may not be adequate to capture the relationship between price changes and money supply growth, as the economic system evolves and people ＂s income and wealth grow. An examination of China＇s GDP deflator and broad money supply relative to nominal GDP shows that the relationship between the two series is relatively weak. A further examination of China＇s monthly CPI series over the period 2001-2010 reveals that the autoregressive models are a better fit than the moving average models, which suggests that the role of CPl expectations has been significant and important. Because of the importance of inflation expectations in CP1 movement, we believe the Central Bank＇s monetary policy that targets CPI inflation should emphasize the use of policy instruments that have direct and strong communication links with the public. Quantitative measures would have their own use, but their effectiveness would be unlikely to match that of interest rate measures, especially from a short-term perspective.

Is the Phillips Curve Valid in China？

Is the ＂non-existence＂ of the Phillips curve in China a truth or just an illusion due to the deficiency of data？ Should policy analysis follow the light of New-Keynesian or New-classical economics？ These questions require empirical work on the Phillips curve, which has long been limited in China due to an inaccurate unemployment rate and unreliable estimated output gap. Instead of the insignificant or self-contradicting results in previous work, this paper puts forward a significant estimation, creatively using the vacancy-jobseeker ratio instead of the unemployment rate. It is suggested that a robust Phillips curve cannot be ignored and New-Keynesian economics should be employed in policy analysis in the short run.