RMB Exchange Rate Formation Mechanism And The Effectiveness Of Monetary Policy In China

Under the open economy, the exchange rate formation mechanism is an importantlink of a country’s economic and financial activities, and it’s also an important part of theeconomic system of a country, according to the saying of the trilemma, a country’sexchange rate regime, capital flows and closely related to a country’s monetary policyindependence three, China is now entering a period of "trilemma", the premise of thecapital account and the capital market is not fully open, therefore,the effectiveness ofChina’s monetary policy with our exchange rate formation mechanism is worthstudying.This paper verify that the implementation of monetary policy with the currentexchange rate mechanism is under constraints andthe realization of the objectives of monetary policy is affected by Granger causalitytest.On this basis, some reform proposals in China financial market to enhance theeffectiveness of monetary policy in china such as making the exchange rate formationmechanism perfect and so on is suggested.