Investigating asymmetric determinants of the CNY–CNH exchange rate spreads: The role of economic policy uncertainty

Xiao-Lin Li, Xin Li and Deng-Kui Si

Economics Letters, 2020, vol. 186, issue C

Abstract: This study investigates the asymmetric effects of economic policy uncertainty (EPU) and other possible determinants on the CNY–CNH spreads by utilizing the nonlinear ARDL model. For this purpose, we construct a novel EPU index based on the EPU indices of China and the G7 countries by using principal component analysis. The results show substantial asymmetric effects of the concerned determinants on the spreads. Moreover, the composite EPU significantly affects the spreads, with positive shocks to the composite EPU inducing widening CNY–CNH spreads.

Keywords: Exchange rate spreads; Economic policy uncertainty; Onshore–offshore FX markets; Nonlinear ARDL model (search for similar items in EconPapers)
JEL-codes: F21 F31 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304185

DOI: 10.1016/j.econlet.2019.108827

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