Compare The Interest Rate And Exchange Rate Linkage Between America And China Before And After The Exchange Rate Reform

The research of the linkage between interest rate and exchange rate have already had a long period of time whether aboard or domestic. Research level various in many aspects,from the theoretical relationship between interest rates and exchange rates and the empirical inquiry of interest rates and exchange rate linkage to how to achieve the national economic objectives through interest rate policy and exchange rate policy adjustments. In addition, what we have to mentioning is that this issue has been investigated so thorough and meticulous but scholars from domestic and foreign still keep going on this problem. The reason is that the macro environment, foreign policy and other factors are changing consistently. As a result, such new problems will arise, new changes will occur. Facing the new environment we need to reexamine the issue seriously, find the main contradiction which is more close to the fact, then, searching for better solutions. Ultimately achieve the economic goals of national development.From July21,2005China began to implement exchange rate reform. This new policy changes will inevitably affect the interest rate and exchange rate linkage status changes. Simultaneously, financial crisis in the United States in2008will affect China interest rate and exchange rate linkage conditions changes from international factors. These new happenings promote to recognizing and reviewing the upper issue. To meet the new requirements we need to update concepts, solutions, and many other aspects. Only in this way can we propose the crux of the problem about interest rates and exchange rates linkage, find a more suitable method to improve China’s interest rate and exchange rate linkage. Finally reach the steady growth of China’s economic goals.This paper will study and compare the interest rate and exchange rate linkage between America and China before and after the exchange rate reform. From the macro-level to do statistical analysis based on interest rate and exchange rate theory relational model.Use Event study method, Error correction model approach, VAR Dynamic Model Analysis Method and other multiple perspectives to explore the interest rate and exchange rate linkage from an empirical point of view. The results showed that China’s interest rate and exchange rate linkage significantly increased after the reform. The effect of interest rate parity theory has not been reflected well in China. The impact of interest rates on the exchange rate is greater than the impact of exchange rate on interest rates.Our country’s interest rate and exchange rate linkage should be improved. Market-oriented interest rate reform in China, RMB exchange rate formation mechanism improving and conduction among the construction of financial markets are still needs further exploitation.