A new harmonic drive model considering the geometry, internal interactions and assembly error of key parts is proposed in this paper. In this model, a single tooth pair is used to represent the transmission mechanism of harmonic drive. The meshing stiffness between the flexspline and the circular spline, the torsional stiffness of the flexspline cylinder, and the radial stiffness of the thin-walled ball bearing are included and formulated. The kinematic error is fitted using a low-velocity test, and its generating mechanism is analysed. The friction of the harmonic drive is formulated at the tooth meshing section and at the ball bearing, where its parameters are identified based on experimental results. Based on the new model, velocity step simulations are conducted. For comparison, velocity step experiments at eight different velocities from 60 to 3000 r/min are performed, and the simulation results are in good agreement with the experimental results. The new model reveals the dynamic behaviour of the harmonic drive system; therefore, it will be useful for the dynamic design and precision control of harmonic drive systems.