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The interactive CNY-CNH relationship: A wavelet analysis

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  • Tian, Shuairu
  • Gao, Xiang
  • Cai, Xiaojing

Abstract

The extant literature has explored the linkages between the onshore (CNY) and offshore (CNH) Renminbi (RMB) markets, as well as the potential factors affecting their dynamic inter-relationship. However, these efforts were made on a stand-alone basis in terms of dimensions and perspectives. This paper hence adopts the wavelet methodology to comprehensively examine the CNY-CNH interactions over 2010–2022. We find information spillovers across the two RMB markets to be bi-directional and asymmetric, with the exact pattern depending upon the particular sample period and the focal data frequency. Moreover, major macroeconomic events such as China’s exchange rate reform, US-China trade tensions, COVID-19 pandemic, and more recent global uncertainty can exert distinct impacts on the flow pattern of information. We further show that the CNY-CNH exchange rate difference alone serves as a key indicator for the complex relationship between the two markets. As expected, the CNH market is more sensitive to exchange rate difference fluctuations, indicating a powerful market mechanism in the offshore RMB market, or equivalently, a substantial policy impact of the counter-cyclical adjustment by China’s central bank in stabilizing the RMB rate.

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  • Tian, Shuairu & Gao, Xiang & Cai, Xiaojing, 2023. "The interactive CNY-CNH relationship: A wavelet analysis," Journal of International Money and Finance, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:jimfin:v:133:y:2023:i:c:s026156062300030x
    DOI: 10.1016/j.jimonfin.2023.102829
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    References listed on IDEAS

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    1. Chen, Yu-Lun & Mo, Wan-Shin & Qin, Rong-Ling & Yang, J. Jimmy, 2023. "Return spillover across China's financial markets," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).

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    More about this item

    Keywords

    RMB exchange rates; CNY; CNH; Wavelet; Information spillover;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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