Empirical Studies Of Interest Rate Parity Theory In China

The frequent exchange rate fluctuations makes it become every country economic field research's priority and difficult point problem that how to apply exchange rate decision theory to analyze one national exchange rate changes. Through the comparison and screening of different exchange rate decision theory, with China's current market-oriented exchange rate, market-oriented interest rate and capital flow, I think that China's current financial market development background similar to interest rate parity theory's application background and applying interest rate parity theory to analyze China's exchange rate is feasible. The interest rate parity theory in our empirical study can better reveal China's exchange rate and interest rate changes in the laws. This can not only improve the interest rate parity theory in our theoretical study, but also it is an important reference for seizing the current changes in the renminbi exchange rate.Through the different frequencies of testing and data comparison, choose from 1994 to 2006 the daily data of interest rate parity theory's applicability in China for the co-integration test, error correction test and Granger causality test. The empirical results indicate the strict sense of the interest rate parity theory is not set up in China, But interest rate parity associated variables in our long-term existence a balanced relationship, in short-term a dynamic adjustment mechanism from the non-equilibrium state to balance, this mechanism of the major forces from the policy variables, only the exchange rate policy variable is the Granger reasons of exchange rate changes. Therefore, the application of China's interest rate parity model is the right to the original interest rate parity equation with friction coefficient, and the friction coefficient is the interest rate parity theory in China deviation sequence, and from the entire period and phased perspective, using various methods, including graphic analysis, statistical analysis and measurement of quantitative analysis and comparison show interest rate parity in our effectiveness has become stronger, active exchange rate policy and interest rate adjustment of the continuing impact of the one-way direction of the deviation, as well as from future changes to the value of qualitative and quantitative forecast. Interest rate parity theory in our empirical analysis shows that China's current foreign exchange markets with major potential arbitrage risk and speculative risks, with the interest rate parity theory limitations and the political inclination of exchange rate issue, proposed to the independent thinking of the core of a series of policy proposals.