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Forecasting renminbi quotes in the revised Chinese FX market - can we get implications for the onshore/offshore spread-behaviour?

Author

Listed:
  • Christian Von Spreckelsen
  • Frederik Kunze
  • Torsten Windels
  • Hans-Jörg Von Mettenheim

Abstract

Since 2011 China attempts to internationalise its currency by allowing more cross-border trade to be settled in renminbi (RMB). Via the so-called RMB Trade Settlement Scheme trade partners are able to pay and to be paid in RMB offshore. Due to the mostly closed mainland (onshore) market, both markets - dealing with the same currency (RMB) - are separated, whereas CNY refers to the onshore and CNH refers to the offshore market. In this paper, we provide a two-step investigation of the RMB markets. First, we investigate the short-term forecasting performance of spot CNY with GARCH-type and neural network models. Second, we attempt to uncover the benefits of relationships between onshore and offshore RMB. This is achieved by simulating both RMB time series in a multivariate way. Our conclusion is that our proposed models lead to a better understanding of the still young volatility behaviour of the two different RMB series.

Suggested Citation

  • Christian Von Spreckelsen & Frederik Kunze & Torsten Windels & Hans-Jörg Von Mettenheim, 2014. "Forecasting renminbi quotes in the revised Chinese FX market - can we get implications for the onshore/offshore spread-behaviour?," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 7(1), pages 66-76.
    • Handle: RePEc:ids:ijepee:v:7:y:2014:i:1:p:66-76
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    Cited by:

    1. Kunze, Frederik, 2017. "Predicting exchange rates in Asia: New insights on the accuracy of survey forecasts," University of Göttingen Working Papers in Economics 326, University of Goettingen, Department of Economics.

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