Interest Rate Liberation, Direct Financing And Exchange Rate System Selection

In the current period, the academia is lack of the research of rate liberation, directfinancing and the selection of exchange rate regime based on NOEM framework. To thisend, this paper first reviews the evolution of China’s exchange rate system after the reformand opening, makes a brief analysis of the background and reasons of each selection ofexchange rate regime, explores the close relationship between the current exchange rateregime choice and finance market-oriented reform. Following, this paper analyzes thetheoretical basis among the rate liberation, direct financing and exchange rate regimes, andexplores how to study the relationship of them by using dynamic stochastic generalequilibrium model, innovatively quantify the finance market-oriented reform by using theextent of the course of rate liberation and the proportion of direct financing, analyze theexchange rate regime choice in the open economic conditions combining with the Taylorrule; Then, this article makes empirical analysis of dynamic relationship among rateliberation, direct financing and exchange rate regime by introducing the impact ofinvestment cost, the impact of consumer preferences, the impact of monetary policy andthe impact of exchange rate.The results of impulse response and numerical simulation show that: Firstly, the impact ofthe investment cost has significant influence on economic at this stage, we can ease theinvestment addiction by stimulating domestic demand, liberating price and improving thefinancing structure, the appropriate relaxation of exchange rate floating range undermanaged floating exchange rate regime is conducive to the adjustment of economicstructure and endogenous growth of the economy; Secondly, in the process of financemarket-oriented reform, exogenous shocks cause indirect financing departmentcomparatively large fluctuation, while direct financing sector and household consumptionperform relatively stable, improving direct financing and stimulating consumption helpmaintain economic stability in the transition period; Thirdly, managed floating exchangerate system is more suitable for the control of economic fluctuations, with the increasing ofthe degree of rate liberation of and financing structure, the impact on the economydisturbance will be reduced, fully floating exchange rate regime is the better choice. Thispaper argues that we should unswervingly push forward the reform of the financial marketsin future, adjust exchange rate policy based on the progress of financial reform.