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《Financial Economics Research》 2018-02
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Do Low Interest Rates Necessarily Stimulate Inflation:An Empirical Analysis of Continuous Wavelet Transform Patterns in Time and Frequency

Xiang Lijin;Xiao Zumian;School of Economics and Management,Wuhan University;  
Based on monthly interest rate data from between January 1998 and December2016,this study applied the continuous wavelet transform method to empirically analyze the positive and negative effects of changes in interest rates on price level. The results showed that,in the short term,inflation was the main cause of changes in interest rates. The effectiveness of China's monetary policies implied that a positive( negative) change in interest rates tends to lead to a negative( positive) change in inflation. However,changes in the interest rates were found to be the cause of changes in inflation rate in the long term. The supply-side effect generated by changes in costs triggered by interest rates remained dominant. A positive( negative) change in the interest rates tends to cause a positive( negative) change in inflation. Maintaining a low interest rate,however,does not facilitate inflation in the long run. Therefore,a monetary policy that aims to use interest rate cuts to reduce corporate financing costs and promote the development of the real economy does not conflict with a monetary policy that aims to maintain stability in price levels.
【CateGory Index】: F822.5
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