Research On The Nonlinear Relationship Of RMB Exchange Rate,Interest Rate And Capital Transfer

In recent years,with the continuous development of China's economy and the changing international environment,the relationship between domestic financial markets and international financial markets has gradually increased.China's monetary policy and exchange rate policy have made continuous development and progress of,give a full play to the linkage effect of monetary policy and exchange rate policy,and promote the development of China's foreign economy.In the framework of the traditional linear model,most of the literature hold the view that the RMB exchange rate volatility and interest rate volatility exert an influence on the capital transfer,but can not reach an agreement at different levels of economic development under the interpretation of the relationship,particularly,it is no clear whether the relationship is linear or not.In this paper,the threshold regression model is used to investigate the non-linear relationship between RMB exchange rate volatility and interest rate volatility and capital transfer under the different levels of economic development.This paper selects the monthly data of exchange rate,interest rate and capital transfer from January 2010 to December 2016,and explores the nonlinear relationship of RMB exchange rate,interest rate and capital transfer by constructing the threshold regression model by using the level of economic development as the threshold variable.The main points are as follows,firstly,using the Hansen(1999)method,and the economic development level is used as threshold variable to test the threshold effect,the results confirm that there is an obvious threshold effect on t capital transfer,interest rate volatility and exchange rate movements.Secondly test the nonlinear relationship of capital transfer and RMB exchange rate and interest rate volatility by threshold regression model.Finally,the impact of exchange rate changes and interest rate fluctuations on capital transfer is different under the different level of economic development,which shows a threshold characteristic.The results of this study show that the impact of exchange rate fluctuations and interest rate fluctuations on capital transfer varies with the level of economic development within the sample interval,which is not a linear relationship.The impact of exchange rate changes on capital transfer is negative,different from the degree of linear regression,however,when the level of economic development is in the stage of steady development,the impact is more significant than linear regression,when the level of economic development is in the stage of rapid development,the effect is lower than that of linear regression.The effect of interest rate fluctuation on capital transfer is different from that of linear regression,which is an obviously "V"-type nonlinear relationship,when the level of economic development is in the stage of steady development,the increase of interest rate has a negative effect on capital transfer,when the level of economic development is in the stage of rapid development,the increase of interest rate has a positive effect on capital transfer.The influence of RMB exchange rate fluctuation and interest rate fluctuation on capital transfer shows obvious threshold characteristic.As a threshold variable,the economic development level is divided into two stages by threshold model regression.When the level of economic development is in the stage of steady development,the impact of China's monetary policy is limited,sometimes even counterproductive,the effect of attracting capital inflows by exchange rate changes is better than that of monetary policy through the adjustment of interest rate.When the level of economic development is in the stage of steady development,the effect of the level of interest rate volatility on capital transfer is significantly improved and the effect of the exchange rate changes is reduced.The effect of adjusting the exchange rate to promote the capital transfer by exchange rate policy is limited,the effect of interest rate policy adjustment on capital transfer is significant,monetary policy can influence capital transfer effectively.Through threshold model regression,this paper examines the mechanism of the influence factors of capital transfer under different economic development levels,the results of this study will help to develop a coordinated monetary policy and exchange rate policy to promote China's financial stability and economic development at different levels of economic development.