Empirical Research Of Chinese Linkage Mechanism Of Interest Rate And Exchange Rate

Accompanied by the intensification of world economic integration and financial globalization trends, China has become an important member of the financial system of the world.In the integrated economic and financial environment, the country’s economic development is not to be the simple perspective of its development, how to promote the continuous development of the win-win,and how to finally promote the development of the world economy is the most essential and core subject. Interest rates and the exchange rates are as important means of economic policy, they both are important indicators of the measure of a country’s economic development. Interest rate is an indicator of the price of the currency, while the exchange rate is the indicator of the foreign currency, former reflects the price of domestic currency, while the latter reflects the value of the inter-country’s currency. Therefore, both of them have been given important roles in maintaining the currency market stability, promoting the development of the capital market. Interest rate and exchange rate policies are important leverage tool to strengthen the coordination of the development of the national economy. They need to be use as a linkage measure to take the macro-regulation of the domestic and international economy as a two-way function. In particular, china settles in the world economic environment and domestic economic environment which are complex and uncertain. Global economic situation and the development is not synchronized, especially the subprime financial turmoil broke out in2008and debt crisis of Europe in2012are effect the stability of the world economy. And there are still insufficient domestic demand, the lowness of the market degree and the overheated investment and other economic issues in our own development, so develop the linkage mechanism of the interest rate and exchange rate is directly related to the China’s future economic development in the international and domestic situation.This paper draws on previous scholars’ theoretical results of the interest rate and exchange rate linkage mechanism, analyzes the transmission mechanism, combines with the accrual economic situation of China’s exchange rate reform in2005., bases on the covered interest parity model angle, using eviews measurement software to analyze the data stability, causality Granger test,cointegration johnansen test, VEC error correction model, impulse response function and variance decomposition, to find out the effect of the linkage mechanism and point out the problems and constraints of its development.This article take the part-part-overall as the structure, the first analyzes the research results of other scholars on the subject, and discusses the structure and means of this analysis, secondly discusses the theoretical basis of the sticky price model and analyzes the conduction mechanism. Thirdly analyzes the empirical interest rates and exchange rates linkage mechanism of china in2005, and finally analyzes the problems of our pratice constraints and policy recommendations.