The Empirical Study Of Relationship Between Benchmark Interest Rate And Exchange Rate Changes In Our Country Based On The Analysis Of SHIBOR

With the accelerating process and the improving level of our country’s economicopening to the outside world, we share the global interests,but at the same time manyproblems have to be faced. The steady development of economy is no longer a problemof internal, at the same time we must solve the problem of external balance. In the faceof the problems along with economic globalization, a country must strengthen themacroeconomic regulation and control, improve the economic and financial system,take a variety of policies coordinately and resolve the economic and financial crisisinitiatively. Interest rate and exchange rate is the sign of China’s domestic and foreigncurrency prices, the mainly control variables of macroeconomic policy. Interest rate andexchange rate is not independent of each other, they should have certain linkage effectin theory, Interest rate policy and currency policy, as one of the important waysrespectively to maintain the internal and external economic equilibrium, they should beused coordinately. In recent years, our country promotes market-oriented reform ofinterest rate and exchange rate constantly. Along with the advancement of market-basedreform the linkage relations between interest rate and exchange rate will deepen further.In this context studying the relations between benchmark interest rate and exchange rate,finding the factors hindering the linkage effect is of great significance for theconstruction of efficient operation mechanism of interest rate and exchange rate marketand maintain the stability of the financial market development.After reading a large number of literature at home and abroad,the author combinethe theoretical analysis and empirical research and divide into three parts to analysis therelationship between the benchmark interest rate changes in China and the exchangerate changes. In particular the first part is chapter1and chapter2, chapter1mainlyelaborates the research background, significance of this article and the research situationof the relationship between exchange rate changes to interest rates at home and abroadChapter2is a general theoretical analysis of the relationship between interest rate andexchange rate, on the basis of the classical theory model this chapter introduces theconnotation of the benchmark interest rate and exchange rate formation mechanism inour country and sum up the interest rate and exchange rate linkage mechanism. Thesecond part is the empirical research, including two chapters. Chapter3the author firstly introduces the choice of benchmark interest rate in our country, analyzes thecauses of this article choose SHIBOR as the benchmark interest rate. Then the authoranalyzes the trend of SHIBOR and the exchange rate since the SHIBOR operation inJanuary2007, the result is that the benchmark interest rate and the RMB exchangemove in the same direction in reality; chapter4found the empirical analysis modelbased on SHIBOR, RMB nominal effective exchange rate, money supply, and theUnited States federal benchmark interest rates. The first step is an empirical study basedon SHIBOR and RMB nominal effective exchange rate, the results show that there is nolong-term co-integration relationship between them. Then after the introduction ofmoney supply and the federal funds rate, there is a new empirical research on therelationship between the benchmark interest rate and exchange rate by establishing amultivariate model. The results show that both long-term co-integration relationshipexists, and the change direction is consistent with the intuitive judgment. But theshort-term performance is not significant, Granger causality test shows that pathwaysthat the benchmark interest rate affects the exchange rate are blocked and influences theexertion of the linkage mechanism. Based on the results of the empirical analysis andcause analysis. The third part is chapter5policy and suggestions, the author put forwardthe corresponding policy recommendations in deepening the reform of interest ratemarketization, opening the capital account gradually, and promoting the reform ofexchange rate marketization.The innovation of this paper is selection of variables in first, this article selects theShanghai interbank offered rate (SHIBOR) as the benchmark interest rate that isdifferent from previous research. With the improvement of marketization, the call forSHIBOR as the benchmark interest rate is higher and higher, but the study ofrelationship between SHIBOR and exchange rate is less in our country. Secondly， theempirical research method, this article studies the relationship between benchmarkinterest rate and exchange rate first, and then construct a model containing multiplevariables by introducing the variables of money supply and the federal funds rate,comparing the change of relations between the them so that we can how the othereconomic variables affect this relationship more clearly.