An Analysis On The Interaction Effect Between Exchange Rate Of RMB Against US Dollar And Interest Rate Of US

As a price of internal and external performance of a country’s macro-economy, interest rate and exchange rate can be regarded as the core of the financial signal. In the macro field, they connect the money market, foreign exchange market and macroeconomics and have an important impact to both individuals and businesses on the savings, credit and investment. After the global financial crisis, Chinese economy suffered a huge impact in the crisis. he interest rate policy and exchange rate policy is particularly important in the regulation of macro economy, reducing the risk of impact. So the study analyzes the interaction effect between the interest rate and the exchange rate has great practical significance in setting macroeconomic policy.In this context, this thesis analyzes on the long-run equilibrium relationship and the short-term fluctuation relationship between Interest Rate of us and Exchange Rate of RMB against US dollar. It is to contrast and analyze the relationship between the interest rate of us and Exchange Rate of RMB whether changes or not after the financial crisis. First, in the theoretical part of this paper, we introduce the classical theory about the relationship between exchange rate and interest rate, such as the theory of interest rate parity, purchasing power parity theory, capital market theory. Secondly, we study the conduction mechanism of the exchange rate and interest rate. Thirdly, the paper makes an empirical analysis. The empirical methods used in this paper include the unit root test, Johansen co-integration test, Granger causality test, VEC model and VAR-MGARCH model. Finally, we perform the analysis of price spillover effect and volatility spillover effect between the Interest Rate of us and Exchange Rate of RMB against US dollar.This thesis is divided into six parts. The first part is the introduction, including the background of the research and significance of the research, literature review, research content and research ideas. The second part expounded the theory model of interaction between exchange rate and interest rate. The third part introduces the selection basis of the index and data, the sources of data, the empirical model. The fourth part is empirical test. Using micro-data, we research the long-term equilibrium relationship between Interest Rate of us and Exchange Rate of RMB against US dollar. The fifth part uses the VAR-MGARCH model to analyze volatility spillover effect of between Interest Rate of us and Exchange Rate of RMB against US dollar. The sixth part is the test results. We will put forward some policy suggestions.The study shows that there are long-term equilibrium between the interest rate of us and Exchange Rate of RMB and this equilibrium did not change before and after the crisis. It shows the change of the government policy on the long-term equilibrium between the exchange rate and interest rate is invalid. After the financial crisis, Effects of American interest rate on Exchange of RMB against US dollar are larger than the effects of Exchange Rate of RMB on American interest rate. There are significant time-varying variance characteristic and volatility persistence in American money market and Exchange market of china. It reflects that the RMB exchange rate market and American interest rate market are more responsive when they are suffered. In money markets and exchange markets, there are no bi-directional volatility spillovers effects between RMB exchange rate against dollar and American interest rate. Just before the crisis American rate against exchange rate of RMB has volatility spillover effect, but this effect disappeared after the crisis. It reflects exchange rate policy adjustment of the central bank can write off the impact of the RMB exchange rate from America money market. Also it shows there are defects in China capital market because of China’s restrictions on capital outflows...