The Empirical Study On RMB Exchange Rate And Interest Rates Base On M-F-D Model

With the further development of China's reform and opening up, under the wave of economic globalization especially the financial globalization, China's financial sector begins to open up and it pushes internationalization of the RMB forward, so the variation of interest rate and exchange rate has been increasingly linkage. Interest rate and currency exchange rate are reactions of the internal and external prices in the money market and foreign exchange market. They are both important levers to regulate the national economy and optimize f resources, but also the important tools of monetary authorities to run domestic and foreign monetary policy.Recent years, in the practical implementation of monetary policy, interest rate policy and exchange rate policies often exist in some contradictions and conflicts, the linkage between interest rates and exchange rate do not reflect well and their coordination is not well. At present, China's financial industry is in the process of marketing reform, interest rate reform propels orderly, though interest rates has not yet achieved fully marketing and capital flows are still subject to stringent restrictions, along with China's financial system reform continues to the depth, capital controls will be gradually liberalized, in the development trend of free floating exchange rates and interest rates marketing, the links between RMB interest rate and exchange rate will be further deepened, and its linkage effects will be more significant, and it will have a profound impact on the coordinated development and the security and stability of economy and finance. Therefore, the interest rate and exchange rate linkage is of great practical significance in theoretical or practical.This paper selects the RMB real effective exchange rate and U.S. dollar real interest rate differentials to make systematical relevance of the theoretical analysis and empirical testing, including the theory analysis of linkage effects between the exchange rate and interest rate based on the context of China's economy and an empirical analysis of the coordination mechanism based M-F-D model RMB interest rate-exchange rate linkage, through empirical analysis, we can draw the following conclusions: In the short term, the difference between real interest rate of RMB and the U.S. dollar has a positive reaction on real effective exchange rate , the increase of difference between real interest rate of RMB and the U.S. dollar will bring the RMB depreciation of actual real effective exchange rate, the impact will increase over time. The difference between real exchange rate of RMB and the U.S. dollar also has a positive reaction on real interest exchange rate of China and U.S., but it is less. Then we make a detailed analysis of deviation from the M-F-D model of reality and reasons of China. Finally, the paper propose specific countermeasures to strength joint coordination mechanism of RMB interest rate - exchange rate based on the above results.