Proceedings of the 2022 International Conference on Bigdata Blockchain and Economy Management (ICBBEM 2022)

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The Dynamics of Prices Under Nominal Interest Rate Policy

Stability of Interest Rate Instruments and Price Effects Under Four Typical Policies

Authors
Ke Zheng1, Runze Yuan2, Hao Zhang3, Xi Xi4, *
1College of Science, China Agricultural University, Beijing, China
2Gengdan Business Institute of Beijing University of Technology, Beijing, China
3College of Information and Electrical Engineering, China Agricultural University, Beijing, China
4China Agricultural University, Beijing, China
*Corresponding author. Email: xixi@cau.edu.cn
Corresponding Author
Xi Xi
Available Online 20 December 2022.
DOI
10.2991/978-94-6463-030-5_38How to use a DOI?
Keywords
Interest Rate Policy; Inflation; Negative Interest Rate; Financial Stability
Abstract

Nominal interest rate policy is one of the most fundamental financial regulation tools in the world nowadays and it plays a rather important role in the economic stability and development of society. What exactly are the effects of interest rate hikes, rate cuts and various central bank interest rate strategies on the real economy? Is their impact policy stable? Under what conditions is it stable? We construct a model containing four typical nominal interest rate strategies under the ideal assumption of an arbitrage free economy to study the differential equations of nominal interest rate and price dynamics. The relationship between the two is shown by mathematical and computer methods such as system stability analysis, changing the initial value to study the dynamic change of the model with numerical simulation and MATLAB graphing. The model reveals that the interest rate system is often unstable and the initial value of interest rate policy is extremely sensitive to prices, and interest rate cuts do not necessarily lead to deflation or inflation. Moreover, the actual price impact of interest rate policy is not only related to the target rate but also to the path of interest rate adjustment. This suggests that, in practice, it is essential to adjust interest rate policy flexibly according to socioeconomic conditions.

Copyright
© 2023 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the 2022 International Conference on Bigdata Blockchain and Economy Management (ICBBEM 2022)
Series
Atlantis Highlights in Intelligent Systems
Publication Date
20 December 2022
ISBN
10.2991/978-94-6463-030-5_38
ISSN
2589-4919
DOI
10.2991/978-94-6463-030-5_38How to use a DOI?
Copyright
© 2023 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Ke Zheng
AU  - Runze Yuan
AU  - Hao Zhang
AU  - Xi Xi
PY  - 2022
DA  - 2022/12/20
TI  - The Dynamics of Prices Under Nominal Interest Rate Policy
BT  - Proceedings of the 2022 International Conference on Bigdata Blockchain and Economy Management (ICBBEM 2022)
PB  - Atlantis Press
SP  - 363
EP  - 371
SN  - 2589-4919
UR  - https://doi.org/10.2991/978-94-6463-030-5_38
DO  - 10.2991/978-94-6463-030-5_38
ID  - Zheng2022
ER  -