The interactive CNY-CNH relationship: A wavelet analysis

Shuairu Tian, Xiang Gao and Xiaojing Cai

Journal of International Money and Finance, 2023, vol. 133, issue C

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.

Keywords: RMB exchange rates; CNY; CNH; Wavelet; Information spillover (search for similar items in EconPapers)
JEL-codes: F31 G14 G15 G18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:133:y:2023:i:c:s026156062300030x

DOI: 10.1016/j.jimonfin.2023.102829

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