The Linkage Of Interest Rate And Exchange Rate Between China And America

With the deepening of financial liberalization,domestic capital is gradually opening to the outside world,and China's financial market is more closely linked to the international financial market.Domestic interest rates,instead of simply determined by the supply and demand of domestic capital,are more vulnerable to the influence of arbitrage behaviors of international credit market capital that pursue interest spreads.In addition,the independence of domestic interest rate policies is also weakened,with the financial cycle tending to be in line with developed countries.As the world's largest developed country,the United States has a strong economic position which grants the autonomy of its interest rate policy as well as a spillover effect on the implementation of other countries' monetary policies.The U.S.Federal Reserve Fund Rate plays the role of the representative interest rate,which has an extensive international influence,on international financial markets.Therefore,under the background of gradual opening of capital and increasing degree of financial liberalization,an empirical analysis of the linkage characteristics of interest rate and exchanges between China and the United States will have the positive theoretical and practical significance.It is conducive to the government's use of interest rates and exchange rates as an important tool for regulating macroeconomics,guiding resource allocation,and balancing internal and external economies.This article is divided into five chapters.The first chapter mainly expounds the research background and significance,research ideas and research methods,and the main research contents.The second chapter focuses on domestic and foreign research literature and analyzes,then verifies the linkage relationship between interest rate and exchange rate on both theoretical and empirical aspects.The analysis of the theoretical mechanism in Chapter 3 is the derivative of the literature review,which lays a theoretical foundation on the subsequent empirical analysis,mainly discusses the classical theoretical model,and analyzes the mechanism of the interaction between interest rate and exchange rate,and analyzes two important exchange rate reformations.The empirical analysis of Chapter 4 is based on the relevant data from 1996 to 2017,using VAR(Vector Autoregression)to study the linkage between China's interest rate and exchange rate in three separated period.The last chapter elaborates conclusions and policy recommendations.The results of the study show that: Compared with no long-term stable cointegration relationship between the real effective exchange rate of RMB and China-US interest rate spread before the exchange rate reform,there is a long-term equilibrium relationship between them after the exchange rate reform.Moreover,the impact of China-US interest rate spread on the real effective exchange rate of RMB is increasingly significant.