Study On The Linkage Between Benchmark Interest Rate And Exchange Rate Of RMB

Interest rate and exchange rate,as the performance of domestic and foreign prices of a country's currency,are the price vanes of a country's money market and foreign exchange market,affecting the operation and development of a country's overall economy.The linkage between interest rate and exchange rate is the power to regulate the internal and external equilibrium of a country's economy.The mutual conduction process between interest rate and exchange rate organically combines commodities with financial market and domestic and foreign markets,thus constituting a market economy operation system.Interest rate policy and exchange rate policy are effectively implemented through the linkage between interest rate and exchange rate.This process is carried out under the combined action of multi-variable,multi-channel and multi-subject internal and external factors.Studying the linkage between interest rate and exchange rate can promote the coordinated development of interest rate policy and exchange rate policy,and help to adjust the internal and external equilibrium of our economy.Firstly,this paper combs the relevant literature and classical theory of the relationship between interest rate and exchange rate,and clarifies the theoretical relationship between them.Secondly,the conduction mechanism between them is analyzed,and the mutual conduction channels between them are summarized.Thirdly,it analyses the course of market-oriented reform of interest rate and exchange rate in China.On this basis,it chooses the benchmark interest rate of our financial market,and considers that Shanghai Interbank Offer Rate(Shibor)is suitable as the benchmark interest rate of our current market,and further analyses the realistic linkage performance between the benchmark interest rate and exchange rate of RMB.Fourthly,on the basis of theoretical analysis,using monthly data from January 2007 to November 2018,this paper makes an empirical analysis of the linkage between the benchmark interest rate and the exchange rate of RMB by introducing other relevant variables.Considering both long-term and short-term perspectives,using stationaritytest and Jonhansen cointegration test,this paper studies whether there is a long-term equilibrium relationship between them under the influence of other factors,and establishes the corresponding VAR model and error correction model to further verify the dynamic adjustment relationship in the long-term linkage process.Then,Granger causality test is used to test whether there is a long-term equilibrium relationship between them.Causality.Finally,through the analysis of impulse response function and variance decomposition,the impact of external environment changes on the short-term dynamic relationship between them is studied.The results show that there is a linkage between the benchmark interest rate and the exchange rate in the real performance,but in the process of empirical analysis,it is found that there is a co-integration relationship between the two in the long run.The one-way transmission between the benchmark interest rate and the exchange rate of RMB is significant,but the two-way transmission is not significant,which further shows that the mutual transmission path between the two is blocked.Finally,according to the conclusion of the article,some suggestions are put forward to strengthen the linkage between RMB benchmark interest rate and exchange rate.