| Since the Chinese economic reform, the RMB/U.S. exchange has been the focus of domestic economic research. As the recent exchange rate reform restarted and the interest rates liberalization accelerated, the relationship between the exchange rate and interest rates, once again, become a hot issue. Although there are quite a few domestic studies on the relationship between RMB-US exchange rate and interest rate, but few involves the research on the regime linkage in the RMB/US real exchange rate-real interest differential relation, and even fewer relate the fluctuation characteristics of RMB/US real exchange rate and real interest differential to the change in monetary policy. And most of the previous literature focus on the impact of exchange rate reform in2005, leaving the influence of the exchange rate reforms in2010exchange rate reform and2013interest rate reform untouched, whether there exists correlation between these monetary reforms and the linkages between the RMB/US real exchange rate-real interest differential, whether these are accompanied by the changes in the volatility characteristics of real exchange rates and real interest rates, are blank areas of research.Concerning the regime switching characteristics of the RMB/US real exchange rate and the real interest differential, this paper starts with the description of the volatility trends of RMB/US exchange rate and the interest rate, it is found that different characteristics has been exhibited by the exchange rate and the interest rate under different monetary policies. After that, trend charts and rolling windows have been used to analyze the real exchange rate and the interest rate differential, and we can conclude that the actual existence of a high degree correlation between the exchange rate and the interest rate differential in their regime switching characteristics: Both the mean and the volatility of these two variables turn out to be regime dependent, and the low mean is always accompanied by high volatility. Based on the previous analysis, a two-state MS-VAR has been adopted as a tool to test the regime features of the RMB/US real exchange rate and the real interest differential.The following conclusions have been proved by the empirical results:1.The two variables are jointly characterized by high volatility during periods of floating exchange rates, and by low volatility during periods of fixed exchange rates.2. The increase in the interest rate elasticity will exert a temporary influence on the volatilities of the real exchange rate and the real interest rate; thereby suggesting that the switching of the monetary policies is the driving force behind the volatility regime switching.3. There exist obvious regime switching characteristics of the volatility of the real exchange rate and real interest rate, leaving the long-run levels of the two variables unaffected;4. the duration of the high volatility regime is only0.56times of the low volatility regime, and most of the high volatility regimes are cluster in the period after the2005exchange rate reform;5. There is a mutual relationship between the real exchange rate and the real interest rate differential;6. The relationship between RMB/US exchange rate and interest rates in the high volatility regime are much more in line with sticky-price monetary theory than that in the low volatility regime.Finally, based on the empirical analysis conclusions, the paper propose policy suggestions about the constriction of exchange market and promotion in the interest rate reform, as well as the advice to coordinate the exchange rate and interest rate policies. |
