Empirical Research on the Interest Rate of RMB and Exchange Rate ——Based on nonlinear Smooth Transition Regression Model

In order to analyze the relationship of interest rate and effective exchange rate,this paper uses the Smooth Transition Regression Model and then chooses the monthly data of these two variables of China、USA、Eurozone、Japan and Korea from Jan. 2002 to Dec. 2011. The results show that exchange rate has a nonlinear influence on interest rate and obvious asymmetry. The last month interest rate and exchange rate have an important influence on interest rate in these four countries. Based on this,in order to prevent the flexibility of exchange rate surge caused by excessive fluctuations of the interest rate,we should progressively and stablely take the initiative to expand the flexibility of exchange rate in the short term. Secondly,we should gradually speed up the process of interest rate and exchange rate co-ordination liberalization,and build an efficient linkage system.