Research On The Effect Of The Reform Of RMB Exchange Rate System On Term Structure Of Interest Rates In China Since The Financial Crisis

Since the financial crisis broke out, the People's Bank of China had announced the expansion of the fluctuations of the RMB exchange rate successively for three times, which reflects that at present formation mechanism of the RMB exchange rate is accelerating. The reform of the RMB exchange rate brings out intensive policies. At the same time, interest rate marketization reform which is one of the cores of the financial system reform of China has made tremendous progress. Term structure of interest rates in China in the 1980s and 1990s was not market-oriented, but now it is based on the SHIBOR with the monetary market and the capital market. Interests play a critical role in the capital allocation, as well as in the macroeconomy. Considering the international economic situation is still not optimistic, and the domestic economy is under "the new normal", the study of the relationship between the reform of RMB exchange rate system and the term structure of interest rates helps the authority to formulate policies taking the interaction of the domestic economy and the foreign economy into account, to ensure steady economic growth. Therefore, the related research of the relationship between RMB exchange rate system reform and the term structure of interest rates during the financial crisis has important significance.This article based on the basic theories of the reform of the exchange rate system and the term structure of interest rates, describes the historical changes of the exchange rate system in China, analyzes the present situation of the exchange rate system in China, assesses the term structure of interest rates in recent years in our country, and introduces monthly time-sequence data to test the effect of the reform of RMB exchange rate system on the structure term of interest rates. And then the term structure of interest rate is divided into three factors of the long-term, short-term and medium. Furthermore the effects of the reform of RMB exchange rate system on the three factors are tested individually.Firstly, the paper provides an overview of the RMB exchange rate system, introduces the process of the reform of the system since the financial crisis, and constructs the index with the method of HP filtering to calculate the specific fluctuations of the RMB exchange rate in recent years.Secondly, the paper introduces the theoretical basis about the term structure of interest rates, defines the concept and the indexes of the term structure of interest rates, analyzes theoretically the multiple effects between the reform of RMB exchange rate system and term structure of interest rate in China according to the expected equilibrium theory, obtains time series of the level factor, the slope factor and the curvature factor of the term structure of interest rates on the basis of Nelson-Siegel model,.Thirdly, on the basis of the Markov-Switching VAR model, the fluctuation of RMB exchange rate, the level factor, slope factor and curvature factor are tested with their stabilities individually and the parameters of the MS-VAR model, indicating that the bond yield curve occurs first lower level of integrity and then move up, the yield curve becomes flat then steep, and fluctuation of RMB exchange rate actually increases at first and then decreases.The dynamic impulse responses of three factors to the exchange rate of RMB changes, showi that there are two kinds of long-term dynamic equilibrium relationship of the non-symmetric state whose features between RMB exchange rate and the term structure of interest rates in the reform environment are stronger impact reacted and shorter extension under the reform environment compared with smaller but more prolonged reaction under the opposite situation. Features in different states imply that the volatility of exchange rate promotes the level factor significantly in the long term, and it is more significant under the unstable economic environment. While the volatility of exchange rate has a significant inhibitory effect on the curvature factor in the long term, and it is relatively weak under the unstable economic environment.Finally, by Monte Carlo simulation, analysis of the influence of the reform of RMB exchange rate system on the term structure of interest rates shows a negative relationship between the fluctuation of the RMB exchange rate and three factors in regime 2, which confirms the analysis about negative value of the coefficient, proving the forward premium anomaly, indicating that due to the strong effect of indirect risk premium, the impact of the reform of RMB exchange rate system on the term structure of interest rates is different in terms of regime 1 and regime 2, which is not consistent with the traditional theory.The main innovations of this paper lie in the following two aspects:First, by leading in a series of reform policies of the reform of the RMB exchange rate system during the financial crisis, this paper introduces the reform process of RMB exchange rate system, and constructs the index to quantitatively describe the fluctuation of the RMB exchange rate from the reform.Second, from the perspective of the interest rate differential, this paper gives a theretical analysis of the mechanism of the reform of the RMB exchange rate system affecting the term structure of interest rates. Introducing the relevant data since the financial crisis, this paper carries out the empirical analysis. On this basis, the term structure of interest rates in China will be further divided into three factors in terms of the short term, the mediun and the long term, and then the different effects of the reform of the RMB exchange rate system on the three factors are compared.