Interest Rate Marketization and Asset Prices Transmission Channel: Dynamic Impacts on the Chinese Economy

Abstract

This empirical study uses the TVP-VAR model to analyze the dynamic impacts of asset price transmission channels (stock price and real estate price channels) on China’s macroeconomic indicators (GDP and CPI) at three stages of interest rate marketization: the deepening stage (1996–2003), the improvement stage (2004–2015), and the comprehensive promotion stage (2016–2024). It explores how M2 influences these asset price channels and their effects on GDP and CPI. The results show that M2 has a stable negative impact on the stock price channel, while its short-term impact on the real estate price channel is positive and becomes consistently positive in the medium and long term. The effects of both channels on GDP are complex and unstable across different time spans: the stock price channel exhibits high volatility in its impact on CPI, whereas the real estate price channel has a strong short-term positive impact that weakens in the long term. The study connects its findings to theoretical frameworks such as Tobin’s Q theory and Modigliani’s wealth effect, providing insights for monetary policy formulation, financial market regulation, and investor decision-making.