| Interest and exchange rates are separately the internal and external price of a country’s legal currency. In an open economic environment, there is frequently a strong linkage between them, and this relationship is the key factor for the country to maintain its internal balance and external balance. China Interbank Offered Rate Reform in 1996 is the beginning, and the central bank cancelled the upper limit of financial institutions deposit interest rate in October 2015, marking China’s interest rate market has been basically completed. Finally, the market interest rate system is formed, which determined by market supply and demand, based on the People’s Bank benchmark interest rate, and according to money market interest rates as the intermediary. At the same time, since the RMB exchange rate formation mechanism reformed in 2005, an exchange rate market is also steadily advanced, which featuring as the RMB internationalization, with the purpose of enhancing the reflect level of market supply and demand and increasing in the floating exchange rate elasticity. In this context, the coordination of interest rate policy and exchange rate policy and its economic impact has become the focus of attention. From the perspective of interest rate liberalization, this thesis examines the problem of interest rate- exchange rate linkage mechanism, theoretically expounds the interaction between interest rates and exchange rates, and studies the effectiveness of interest rate- exchange rate linkage mechanism by empirical analysis.Firstly, the concept of interest rate-linkage mechanism is defined, the reform process of China’s exchange rate policy and interest rate policy is descripted, and then the relevant classic theoretical model of the relationship between interest rates and exchange rates is described. And, on the basis of verifying the effectiveness of the Shanghai Inter-bank Offered Rate,abbreviated as SHIBOR,as the benchmark interest rate in the money market, the thesis selected the SHIBOR(Shanghai Inter-bank Offered Rate,monthly average of overnight rate), the REER(Real Effective Exchange Rate, monthly) posted by BIS(Bank for International Settlements),and the FFR(Federal Funds Rate, monthly),as three core variables of interest rate parity, while adding M2(money supply), NX(Net Exports), FER(Foreign Exchange Reserves)as three important factors to establish SVAR model, respectively tests the linkage between interest rate and the exchange rate in two stages of the interest rate market. And through the impulse response analysis and the analysis variance,the results show there is a certain linkage between interest rates and exchange rates. Although to a lesser extent, but with the acceleration of the process of market interest rates, to the inter-bank market stage, RMB interest rate- exchange rate linkage has a better effect in the deposit and lending rates stage.Finally, according to the empirical conclusions of the interest rate- exchange rate linkage mechanism, the thesis puts forward some relevant policy recommendations on how to improve interest rate- exchange rate market mechanism and the coordination of interest rate policy and exchange rate policy. First, building a flexible managed market system of the interest rate and exchange rate, deciding to the market supply and guiding by the macrocontrol. Secondly, treating the interest rate- exchange rate linkage mechanism as a system perspective view, fully consider the impact of the economic impact on the system as a whole. That is, while formulating the interest rate policy and exchange rate policy, it is necessary to adhere to the policy of independence, but also to strengthen the international coordination of national macro-economic policies. |
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