Forecasting renminbi quotes in the revised Chinese FX market - can we get implications for the onshore/offshore spread-behaviour?

Christian Von Spreckelsen, Frederik Kunze, Torsten Windels and Hans-Jörg von Mettenheim

International Journal of Economic Policy in Emerging Economies, 2014, vol. 7, issue 1, 66-76

Abstract: Since 2011 China attempts to internationalise its currency by allowing more cross-border trade to be settled in renminbi (RMB). Via the so-called RMB Trade Settlement Scheme trade partners are able to pay and to be paid in RMB offshore. Due to the mostly closed mainland (onshore) market, both markets - dealing with the same currency (RMB) - are separated, whereas CNY refers to the onshore and CNH refers to the offshore market. In this paper, we provide a two-step investigation of the RMB markets. First, we investigate the short-term forecasting performance of spot CNY with GARCH-type and neural network models. Second, we attempt to uncover the benefits of relationships between onshore and offshore RMB. This is achieved by simulating both RMB time series in a multivariate way. Our conclusion is that our proposed models lead to a better understanding of the still young volatility behaviour of the two different RMB series.

Keywords: renminbi markets; spread behaviour; spot prices; derivatives forecasting; neural networks; GARCH; China; foreign exchange markets; RMB markets; onshore RMB; offshore RMB; short-term forecasting; modelling; simulation. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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