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Assessing the price dynamics of onshore and offshore RMB markets: An ITS model approach

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  • Sun, Yuying
  • Bao, Qin
  • Zheng, Jiali
  • Wang, Shouyang

Abstract

This paper investigates how the price dynamics of both onshore and offshore RMB markets are affected by fundamental determinants, market liquidity, global risk aversion and policies by using daily data from August 2010 to February 2016. The interval time series (ITS) modelling is applied to study the RMB price mechanism by capturing prices of the two markets as one self-formed interval data. An interval-based Wald test is constructed to examine the differences between the coefficients and an interval-based Mallows criterion is proposed for choosing appropriate explanatory variables. We find that both the price level and the price differences of onshore and offshore RMB markets are greatly affected by economic fundamentals indicated by different returns on stock indexes and market liquidity indicated by bid-ask prices of offshore market price. In addition, it is suggested that the interest rate spread between China and the US and the global risk appetite do not significantly affect the RMB price for both onshore and offshore markets. Finally, the results imply that “811 reform” of the RMB exchange rate regime does not change the fundamental price dynamics of RMB markets, but significantly changes how economic fundamentals affect the price mechanism of RMB exchange rate.

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  • Sun, Yuying & Bao, Qin & Zheng, Jiali & Wang, Shouyang, 2020. "Assessing the price dynamics of onshore and offshore RMB markets: An ITS model approach," China Economic Review, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:chieco:v:62:y:2020:i:c:s1043951x20300730
    DOI: 10.1016/j.chieco.2020.101476
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    5. Sun, Yuying & Zhang, Xinyu & Wan, Alan T.K. & Wang, Shouyang, 2022. "Model averaging for interval-valued data," European Journal of Operational Research, Elsevier, vol. 301(2), pages 772-784.
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    7. Liu, Yiye & Han, Liyan & Wu, You, 2022. "Can skewness predict CNY-CNH spread?," Finance Research Letters, Elsevier, vol. 46(PB).
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    More about this item

    Keywords

    RMB exchange rate; Onshore and offshore markets; Price dynamics; interval time series;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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