Study On Conflict And Coordination Mechanism Of Exchange Rate Policy And Monetary Policy In China

In the open economic conditions, it is the best goal of macro-control to achieveinternal and external economic balance. Exchange rate policy is the key to the externaleconomic equilibrium, monetary policy is the basis of internal equilibrium. This is vitalfor Chinese economy to the coordinated development of them. With China’s opening-up,further opening up of the capital account, trade surplus and the pressure for a revaluationof the RMB, There is a conflict between Chinese exchange rate policy and monetarypolicy in this particular economic stage, which makes the problem of coordination to beconcerned, and has the research value.This paper adopts the inductive analysis, quantitative and qualitative comparisonand dynamic analysis method. By analyzing the practical experience and empirical testof the conflict coordination of our country since1994and connecting with the revelationin developing countries.The paper puts forward the corresponding measures andestablishes the coordination mechanism. Firstly, by analysising the conflict andcoordination on exchange rate policy and monetary policy in China, based on VARmodel and the basic idea of impulse response,the paper obtains three obvious conflictsduring the period of1994to2005and that coordination becomes better after2005.furtherly we know the causes of conflict is the contradiction of the exchange rate systemand monetary supply, as well as the failure of capital controls and the linkage mechanismbetween the interest rate and the exchange rate; Secondly by analysising the financialcrisis in Argentina and Southeast Asia financial crisis, we know the main cause of thiscrisis is the fixed exchange rate system, the excessive financial liberalization andmonetary policy independence loss. So our country should ensure the independence ofmonetary policy, select the reasonable exchange rate regime and open financial marketcarefully; through Chile’s capital account opening model, we find that it is important tochoose proper capital account opening mode and have the coordination mechanismbetween the mature of exchange rate policy and other macro economy policy. Finally,the paper puts forward the interest rate policy measures, the exchange rate adjustmentmechanism and flexible measures to carry out monetary policy in the open marketoperation, to improve the decision basis of RMB exchange rate, enhance the exchangerate develop the foreign exchange market and strengthen the construction of cross-border payments supervision system of exchange rate. Furthermore, we establish an effectivecoordination mechanism.