Research Of Linkage Between China And The USA Interest Rate And Exchange Rate

Interest rate and exchange rate is the main price of a currency market and foreign exchange market. The linkage between interest rate and exchange rate cocern the realization of the internal and external equilibrium to sustain the country’s economy. Mature economies often use the interaction between them to promote the balanced development of the economy. As the main tool of central bank,interest rate and exchange rate are used to adjust monetary market and foreign exchange market, the linkage between interest rate and exchange rate is important to balancing the development of economy in our country. At present our country is facing slowing economic growth, domestic demand is insufficient, the internal and external imbalances. The relationship between them is helpful to solve the problem of inbalance of economy.Because the degree of marketization of the interest rate and exchange rate is not high in our country for a long time, so the relationship between them is limited. Along with the progress of marketization of interest rate and exchange rate quotation mechanism, interest rate and exchange rate linkage between market gradually improve. In this background, the research relationship between interest rate and exchange rate is helpful to promote the coordination of our country’s interest rate policy and currency policy. Dredging the transmission channels of monetary policy, achieving the internal and external equilibrium development of the economy.Firstly, this article introducing the theory of the relationship of interest rate and exchange rate,clear the linkage between them. Secondly, analysising the transmission path between interest rate and exchange rate, the way of influence to each other. Through the analysis of related transmission path to try to find out the real factors influencing the transmission between interest rate and exchange rate in China.Finally according to our country’s realistic economic environment, choosing high degree of marketization of interest rate and exchange rate index, and other relevant economic variables, using the vector autoregression method to research linkage relationship between RMB interest rate and exchange rate. In this paper,the research is divided into two parts: The first part is based on the interest rate, exchange rate;The second part is to join the foreign exchange reserves, the money supply multivariate correlation empirical.The results show that the In the long term, RMB interest rate and exchange rate has cointegration relationship. And it reflects that relationship is asymmetric. The bigger the influence degree of the exchange rate on interest rates. The result shows the pace of market-oriented reform is Out of sync. In multivariate model that consists foreign exchange reserves and the money supply, reduces the affect of the interest rate and exchange rate by itself, and strengthening the ability to explain between two rates.But the interest rate and exchange rate are not the main influence factor to other one.It shows that the mutual transmission path between the two is not smooth. Finally, according to the above empirical results, and cause analysis, put forward several suggestions to promote the linkage between two rates.