Research On The Impact Of Interest Rate Changes On Rmb Exchange Rate

For a long time,the exchange rate has been the focus of attention of various countries.It is an important link of a country’s foreign relations,which directly affects the foreign trade,and is also the economic operation and development.On the one hand,the exchange rate can reflect the general situation of the country’s economic operation,on the other hand,as one of the main economic levers,it has a very important regulatory function for the country’s economic activities.Since 2014,affected by various factors at home and abroad,the RMB is facing a higher overall devaluation pressure.Devaluation of the RMB will not only lead to the rise in domestic prices,increase the cost of living of the residents,on the other hand,will lead to capital outflows,affecting the stability of financial markets.In this case,it is a kind of choice to stabilize the exchange rate of our country and promote the development of economy by means of policy instruments such as interest rate.Therefore,this paper focuses on the impact of interest rate changes on the RMB exchange rate.This article first summarizes current interest rate system and exchange rate system of our country,then according to the different interpretations of the interest rate parity and the PPP theory on the relationship between interest rate and exchange rate,based on the perspective of capital flows and purchasing power respectively,on China’s interest rate on the exchange rate’s influence on the mechanism analysis.Then according to China’s actual and nominal interest rates on the exchange rate may cause different effects,selection of different variables,using cointegration test,vector error correction model and the implementation of the empirical impulse response method.The conclusion shows that the rise of China’s real interest rate will cause the appreciation of RMB exchange rate in the next five months.The rise of nominal interest rate will cause the devaluation of RMB exchange rate in the next four months.To some extent,this conclusion explains the divergence between interest rate parity and purchasing power parity in interest rate and exchange rate.Finally,based on the above discussion,this paper makes a summary and puts forward some suggestions.