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Financial openness, major events, and exchange rate linkage: Empirical analysis based on the DCC-MIDAS model

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  • Zhang, Wenwen
  • Zhan, Yaosong
  • Liang, Yiwei

Abstract

This study examines the comovement between China's offshore RMB exchange rate and the currencies of 11 Asia-Pacific countries from 2013 to 2022 using daily data and the DCC-MIDAS model. We hypothesize that improved financial openness enhances this comovement, while major political and economic events weaken it in the short term. In the long run, endogenous events strengthen the comovement, whereas exogenous events further diminish it. The results show that the 811 Exchange Rate Reform significantly strengthened the comovement, while the China–US trade war and COVID-19 reduced it in the short term. Over time, the trade war increased the comovement. However, the pandemic continues to weaken it, thus highlighting the offshore RMB's evolving regional influence amid financial reforms and global shocks.

Suggested Citation

  • Zhang, Wenwen & Zhan, Yaosong & Liang, Yiwei, 2025. "Financial openness, major events, and exchange rate linkage: Empirical analysis based on the DCC-MIDAS model," International Review of Financial Analysis, Elsevier, vol. 106(C).
    • Handle: RePEc:eee:finana:v:106:y:2025:i:c:s1057521925006659
    DOI: 10.1016/j.irfa.2025.104578
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