The Impact Of The RMB Exchange Rate On Monetary Policy And Its Effectiveness

One of the major problems of internal and external equilibrium problem under open economy has been occurring in our country, "Impossible Triangle" has been demonstrated. However our performance more is two factors to keep in balance the conflict between monetary policy and foreign exchange rate equilibrium policy. Since 1994, there have been three contradiction between the Monetary policy and exchange rate policy :firstly is between 1994 and 1996, suppression of the contradiction between inflation and RMB appreciation; secondly,the contradiction between the suppression of deflation and the devaluation of the RMB between 1998 and 2000; and thirdly ,since 2001, inflation and maintaining a stable exchange rate conflict by Chinese scholars,but also the actual argument is the existence of contradictions.With the advancement of the process of internationalization of the RMB will make free movement of capital, the result is the pressure of RMB appreciation and monetary policy autonomy challenged pressures exist, there is a conflict issue so-called exchange rate policy and monetary policy between .But our country as an economic power, to give up monetary policy autonomy is naturally not desirable, that if we say a little to relax the control of another goal,will not be conducive to the contradiction between the three goals to ease it?So this paper is based on "Impossible Triangle" as the main line, using the data from 1997 to April 2016, with July 2005 as the dividing line, econometric methods can be divided into two subsamples using structural vector auto regression,comparison of the exchange rate reform in 2005 changes in autonomy and effectiveness of monetary policy before and after, to explain the expansion of the RMB exchange rate flexibility. It can provide reference for the future direction of the reform of RMB exchange rate system. The empirical results show that the greater flexibility of exchange rate system, China's monetary policy tools on the effectiveness of output and price is more prominent.In addition, after the exchange rate reform in 2005, the exchange rate not only significantly affect the monetary policy itself,but also through the monetary policy target variables indirectly promote the growth of output. Based on this, the exchange rate policy in the future should be appropriate to expand the range of RMB exchange rate fluctuations, so as not to affect the effect of monetary policy play. Secondly, the coordination of exchange rate policy and monetary from the perspective of policy based on the theoretical model of choice given the exchange rate regime, also once again demonstrated the theoretical basis of"Impossible Triangle", and a brief description of the course of the reform of RMB exchange rate system, and the necessity to give up the pegged exchange rate regime and possible steps design.The possibility of the future direction of the RMB exchange rate reform is that choose currency basket system in the short term, next is target zone system, to improve the foreign exchange market .When the conditions are met, the ultimate direction of the RMB exchange rate system is to complete the floating exchange rate system. Finally, according to the relevant empirical research results and the thought, combined with the actual situation of China, the paper gives some suggestions about the policies.