Assessing the CNH–CNY pricing differential: Role of fundamentals, contagion and policy

Michael Funke, Chang Shu, Xiaoqiang Cheng and Sercan Eraslan

Journal of International Money and Finance, 2015, vol. 59, issue C, 245-262

Abstract: Renminbi internationalisation has brought about an active offshore market where the exchange rate frequently diverges from the onshore market. Using extended GARCH models, we explore the role of fundamentals, global factors and policies related to renminbi internationalisation in driving the pricing differential between the onshore and offshore exchange rates. Differences in the liquidity of the two markets play an important role in explaining the level of the differential, while rises in global risk aversion tend to increase the differential's volatility. On the policy front, measures permitting cross-border renminbi outflows have a particularly discernible impact in reducing the volatility of the pricing gap between the two markets.

Keywords: Renminbi exchange rates; China; Onshore and offshore markets; GARCH models (search for similar items in EconPapers)
JEL-codes: C22 C52 F31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:59:y:2015:i:c:p:245-262

DOI: 10.1016/j.jimonfin.2015.07.008

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