Based on some“Chinese characteristics”such as capital account liberalization，reform of exchange settlement system，sterilized intervention and so on，this paper introduces international risk premium and builds a small open economy DSGE model to analyze the impact of capital account liberalization on economic fluctuations and welfare when interest rate parity does not hold. Theoretical analysis and numerical simulation show that: 1) The increase in deviation of Interest Rate Parity increases the inflation volatility，exacerbates the economic fluctuations，and decreases welfare. If the central bank ignores the impact of deviation of interest rate parity，the influence of foreign monetary policy shock on domestic inflation，economic fluctuations and welfare will be underestimated. 2) Capital account liberalization reduces the inflation volatility and economic fluctuations，and enhances social welfare. Therefore，China should insist on capital account liberalization，and interest rate and exchange rate marketization，which can reduce the international risk premium and further improve the payoff of capital account liberalization.