The Impact of Large Interest Rate Differentials between China and the US on the Role of Chinese Monetary Policy: Based on Data Model Analysis

Jianhua Yao

doi:10.6981/FEM.202408_5(8).0025

Authors

Jianhua Yao

DOI:

https://doi.org/10.6981/FEM.202408_5(8).0025

Keywords:

Economic Growth Rate; Interest Rate; Monetary Policy; M2; Policy Failure.

Abstract

China and The US interest rates have diverged significantly, and the interest rate deviation, as measured by the 5-year and 10-year Treasury yields, has reached a staggering 228BP. From the perspective of loan spreads, China's LPR continues to decline, while the United States' LPR continues to rise after rising. Interest rate markets have diverged dramatically. Looking at China's money supply in the past 15 years, through data modeling, we find that before 2020, monetary policy has a positive correlation with economic growth, while after 2020, we find that monetary policy has a negative correlation with economic growth. This is a very strange phenomenon. This also shows that China's monetary policy has been unable to achieve its goal of promoting economic growth in the context of huge interest rates in China and the United States. There may be many reasons for this phenomenon, but the biggest one is the huge divergence in interest rate differentials between China and the United States.

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