Empirical Analysis on the Interest Rate Transmission Mechanism in China: 1998-2008

Granger causality test, cointegration test, and VAR analysis are used to analyze the interest rate transmission mechanism from 1998 to 2008 in China. The results indicate that money supply plays more important role than both the money-market rate and the lending rate in monetary transmission mechanism, and the interest rate channel is still not the key channel of monetary transmission mechanism. It is necessary to further promote interest marketization reform, and construct effective connecting mechanism between money-market rate and lending rate for enhancing its effectiveness.