The Relationship Between Exchange Rate And Interest Rate In The Process Of Currency Appreciation

Since China’s exchange rate reform in2005, the RMB appreciation has gone through the process of eight years. Based on cumulative appreciation pressures, as well as the continued expansion of economies, academics and policy makers need to think about many questions. For example, which process of appreciation is the best for China, what should be taken more attention in the process of appreciation. To learn the experience of other developed countries, this paper selected the United States, Germany, Japan to discuss the long-term and short-term relationship between interest rate and exchange rate. So we can deepen our understanding of the current environment of interest rate and exchange rate. And This paper decomposed the time series of four countries into trend, cycle and random components relying on B-N trend-cycle decomposition method.In conclusion, we get the following conclusions:In the long term, four counties all faced significant upward pressure, and interest rates decline when the currencies appreciate; In the short term, interest rates and exchange rates fluctuate in synchronization, especially for German; Different monetary policies and economic backgrounds contributed to different paths of the appreciation. Besides, we may should refer to the experience of German, and put more attention on economy development, try to complete the appreciation in the condition of economy stability.