The Fluctuation Research Of The Mixed Taylor Rule And The CNY-USD Real Exchange Rate

Since the1990s, the interest rate rule has gradually become the main principles of the national central banks conduct monetary policy operations. Proposed by Taylor in1993,"Taylor rule" has become the theoretical basis of the interest rate rule. The original Taylor rule was raised in a closed economic environment, which did not consider the exchange rate factor. With the advance of economic globalization, the impact of exchange rates on a country’s economy became increasingly evident. Interest rate policy and exchange rate policy has became an important part of a country’s financial policy.We explore the link between an interest rate rule for monetary policy and the behavior of the real exchange rate. By combining the Taylor rule with uncovered interest parity we have a relationship that is rather richer than uncovered interest parity. By constructing cointegration vector autoregressive model, we analysis the relationship between CNY-USD real exchange rate, GDP gap, the inflation rate gap and the money growth gap. The analysis shows that the empirical analysis results are nearly consistent with the conclusions of the theoretical model, the GDP gap and the expected inflation gap is negatively correlated with the CNY-USD real exchange rate. But the money growth gap is positively correlated with the CNY-USD real exchange rate, which is not consistent with the conclusions of the theoretical model. In the short-term relations, the CNY-USD real exchange rate is not subject to the impact of money growth gap. Some relevant variables are ignored in the empirical analysis, leading to the CNY-USD real exchange rate impact on expected inflation and GDP gap is too strong, not consistent with the actual. In the last part, some related policies and measures are proposed.