The Linkage Effects Between Foreign Exchange Market and Capital Market After Exchange Rate Reform in China-Based on EEMD

Based on the logical starting point of investors' expected benefits change, this paper built a model of foreign exchange market and capital market theory of linkage mechanism under different expected earnings. Then it derived the long cycle components which reflected the linkage through dividing the time after the exchange rate reform into four stages and exploring the data of Chinese Foreign Exchange Market and capital market based on EEMD. And the spillover effects of these two markets in each stage were analyzed respectively using VAR-GARCH-BEKK model. The results reveal that affected by China's economic growth mode as well as the foreign exchange control, the spillover effect between two markets different stage presents different characteristics. Although there is a strengthened certain degree of overall linkage intensity, the implementation of price transmission mechanism of the two markets has not been improved in the development of exchange rate reform. Therefore, promoting the exchange rate liberalization, opening the capital account step by step, and improving the RMB exchange rate formation mechanism are the key to improve the initiative and effectiveness of monetary policy and the maintenance of national benefit.