Research On The Interactive Relationship Between Real Interest Rate And REER Of RMB

Exchange rates and interest rates are the price of a country's foreign and domestic currency and important regulatory lever in financial markets.As an emerging economy,China has tried and explored much in exchange rate market and interest rate market since the financial reform in recent years.Exchange rates and interest rates are not independent of each other,and they can affect each other in an open economy condition.Research on the relationship between exchange rates and interest rates will not only help test whether the transmission channels between the two are smooth,but also provides empirical support which contributes to the further realization of the market.Early in the 20 th century there were some classical theory research on the relationship,such as interest rate parity theory and the sticky-price theory.Due to the classical theory of assumption conditions are harsh,it is often unable to set up in the real world,but it can provide theoretical support and theoretical explanation for the relationship between the two in practice.This paper selects real interest rates and the real effective exchange rate monthly data from July 2005 to February 2016,as well as foreign exchange reserves,a total of 128 samples to study the relationship between short-term and long-term relationship between real interest rates and real effective exchange rates of RMB after 2005 currency reform.Besides,we forecast the real effective exchange rate and judge the real value of the RMB based on the forecast.First,do logarithmic differential processing to the real effective exchange rate and foreign exchange reserves to obtain the rate of change in sequence.Three sequences are processed order one sequence,so conduct Johansen co-integration test based on this and prove the existence of long-run equilibrium relationship;secondly,use error correction model combined with the impulse response function to analyze the short-term interaction between the real effective exchange rates and real interest rates.And then make semi-annual forecast based on error correction model of the real effective exchange rate.The conclusions are as follows:After the exchange rate reform in July 2005,the RMB real effective exchange rate and real interest rates exists negative long-term equilibrium relationship.Once the difference of the real interest rates increased 1%,the real effective exchange rate index fell about 1.63%,which means the conclusion is consistent with the effective interest rate parity theory;Once the foreign exchange reserves increased 1%,the real effective exchange rate index increased by 9.6%;In short-term,the impact on the real interest rate differential from the real effective exchange rates were larger and sustained strong;The actual prediction of RMB means a real depreciation from February to April 2016,while a real appreciation from May to August 2016.