The Empirical Research Of The Relationship Between Interest Rate And Exchange Rate In The Process Of China's Market-Oriented Reform Of Interest Rate

In a market-oriented of interest rate and the free movement of capital, interest rates and exchange rates are based mainly on the currency market, supply and demand of the capital market and foreign exchange market, the link between the three major markets of the inevitable impact on the exchange rate determines the interest rate. The impact of exchange rates on multiple transmission channels. the normal level of interest rates and adjustments is directly linked to the exchange rate trends, therefore interest rate policy and exchange rate policy coordination or direct impact on the level of interest rates and exchange rates, and role in the international balance of payments. the level of inflation, money supply and demand factors, the financial market and the macro-and micro-economic to have a significant impact.The degree of market-oriented interest rate is important to exchange rate mechanism of different interest-rate transmission mechanism : In terms of interest rates, the need to keep the Central Bank to intervene in order to maintain macroeconomic and financial stability. But in the interest rate market-oriented conditions, the conduction mechanism on the market can maintain macroeconomic and financial stability. the basic monetary authorities not to intervene; greater exchange rate flexibility, greater monetary policy independence, The inflow of short-term speculative capital has been the more, and the real economic impact of financial shocks, the floating exchange rate system and open capital account and a fixed exchange rate system is superior to the combination mix. In this paper the empirical study of interest rate and the exchange rate , using the nominal effective exchange rate as the proxy variables of the nominal exchange rate. The nominal effective exchange rate can reflected currency in the changes in the average level of multi-currency, can fully reflect the relative value of a country's currency .It has an important reference value of China's exchange rate system reform and market regulation. And through the least-squares regression and residuals unit root test, we can see there is a conintegration relationship exists between nominal interest rates and nominal effective exchange rate. The jonhensen test results indicate that : nominal interest rates , nominal effective exchange rate, GDP ,M2 have conintegration relationship also.The conintegration function is: LnNEER = 0.1522 Lnr + 2.4772L nM - 3.8341 LnY+ 4.1065 The error correction model is :Δ( LnNEER ) = -0 .0034 ecm - 0.0334Δ( LnNEER ( -1 )) - 0.4122Δ( Lnr(- 1)) +1 .2623Δ( LnM (-1 )) + 1.3957Δ( LnY(-1)) - 0.0131The two models before shows that LnNEER focus on the long-run equilibrium model to the relationship between the short-term dynamic adjustment process. Explanatory variable fluctuations can be divided into two parts : One is short-term fluctuations,it can be reflected by the error correction model; Another part is a long-term balance, that is the conintegration relationship among variables.From empirical analysis, we can see that the coefficient of elasticity of the long-term nominal interest rates on the exchange rate is far less than the actual output and money supply in the long-term flexibility of the exchange rate factor This is due to our long-term interest rates, the interest rate adjustment smaller. Short-term interest rates is the main role of the exchange rate through the capital market and currency markets, be showing a positive relationship between interest rates and exchange rates. According to error correction model estimates the short-term interest rate and exchange rate elasticity coefficient is negative, and this shows that China's economic opening, In particular, the degree of liberalization of the capital market is still relatively low, the interest rate parity theory of limited applicability in China. Positive test results of this study confirmed the RMB interest rate and the effect of exchange rate movements on the existence, But it also reveals the impact on the current capital market interest rates on the exchange rate transmission channel block problem.This paper analyzes the recent implementation of monetary policy, the conflict of the interest rate policy and exchange rate policy . mainly in the following aspects :①The interest rate policy in line with economic cycles can't achieving coordination with foreign currency.②Rigid exchange rate system blocks the mechanism for interest rates and exchange rates.③External equilibrium difficult to achieve,the independence of monetary policy to be challenged.With the increased liberalization of capital flows,the mechanism of interest rates and the exchange rate is more closely. Ultimately exchange rate policy independented monetary policy has more restrictions.Finally, advanced propose on how to rationalize the interest rate and exchange rate policy.①Determine a reasonable time to make recommendations to reform the financial arrangements,reduce the impact of financial liberalization, play the synergy of financial reform.②Form the monetary policy mix, Play the interest rate mechanism "internal stability" ineffect .③Hastening the process of market-oriented interest rates,form flexible conduction mechanism between interest rate and exchange rate policies.④Promote market-oriented interest rate and exchange rate linkage mechanism, and gradually form a market-oriented exchange rate system with the coordination of the interest rate mechanism.