Research On The RMB Interest Rate And Exchange Rate Linkage Between SVAR Based

Interest rate and exchange rate is an important economic lever to guide theallocation of resources，and are also two important policy tools for central banks toadjust macroeconomic both in the money market and foreign exchange market.Interest rate and exchange rate play a very important role in a country’s economicdevelopment, and is also a key factor in maintaining the internal balance and externalbalance of economy. The relations of mutual linkage and constraint between themhave also become the premise and foundation of economic stability. The coordinationof interest rate policy and exchange rate policy is the basis of the internal and externaleconomic balance. The linkage relation between interest rate and exchange rate getsmore and more attention of academia and Governments.At present, the marketization of RMB interest and the reform of RMB exchangerate’s formation mechanism are promoted in order. Meanwhile, the central bank’scontrol on capital projects is also gradually liberalized. The realistic basis of researchon linkage relation between RMB interest rate and exchange rate is improved andperfected constantly. Therefore, the research on linkage system between RMB interestrate and exchange rate is a significant and practically needed subject. And also, it canpromote the effectiveness of policy-making on exchange rate and interest rate.By establishing SVAR model, this article uses the impulse response function toexplore the interaction between interest rate and exchange rate. And the result showsthat the theoretical linkage relation exists between RMB interest rate and exchangerate. At last, this article analyzes the practical reasons in detail.