The paper designs an optimal interest rate rule with a role of money by theoretical analysis based on the new Keynesian model and a money demand function. This rule indicates that if either the weight of money growth rate stability or interest rate coeficient of the money demand function is bigger, the responding coeficient of money growth rate is increasing, monetary policy becomes more aggressive. Then, we use both linear regression method and threshold regression method to make an empirical analysis on the reaction function with China’s data, respectively. The results show that all coefficients of inflation, product gap and money growth rate are bigger than zero, which implies that when economic development deviates from either equilibrium state or central bank’s target. the interest rate rule could conduct that the eentral bank would take correct measures in order to make sure the stability of economic development. Moreover, we find that all coeficients in the regime of high money growth rate increase are bigger than those in the regime of low money growth rate increase.

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