Research On The Exchange Rate And Interest Rate Linkage Relationship

Exchange rates and interest rates is an important lever to adjust macroeconomic, acountry’s foreign and domestic monetary policy tools. Therefore has important value tostudy the linkage between exchange rates and interest rates.This paper uses the modern economic tool, using a combination of theoretical andempirical analysis. Reviewed the historical changes of China’s exchange rate andinterest rate in the basis of the elaborate interactive relationship theory between theexchange rate and interest rate, and analysis of China’s exchange rate and interest ratetransmission mechanism, then select China from July2005to the current RMB to theU.S. dollar exchange rate and the interest rates of the two groups of data(A group of realinterest rates and the real exchange rate, and the other group is the nominal interest rateand the nominal exchange rate) to a series of empirical analysis. The empirical results:linkage relationship between the exchange rate and interest rates do not significantly.Finally, some policy suggestions are taken to solve existing part of the problem betweenChina’s exchange rate and interest rate linkage relations(Promote the marketization ofinterest rates, expand the opening of the capital, and vigorous development of China’sforeign exchange market). These policy recommendations helps to make the strongendogenous linkage between China’s exchange rate and interest rate, one of the flexibleand effective macro-control tools.