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The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis

Yin-Wong Cheung, Cho-Hoi Hui and Andrew Tsang ()
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Cho-Hoi Hui: Hong Kong Monetary Authority

No 62017, Working Papers from Hong Kong Institute for Monetary Research

Abstract: We study the renminbi (RMB) central parity formation mechanism following the August 2015 reform. Statistical models are formulated to assess the linkages between the central parity and the alternative variants of the RMB exchange rate, market volatility and selected control variables. In a linear regression framework, we identify the roles of the onshore and offshore RMB exchange rates and the US dollar index, but not the RMB currency basket index. However, the marginal effect of the RMB index is revealed via a multiplicative interaction model that incorporates a condition variable given by the volatility of the offshore RMB market. The offshore RMB volatility exerts a dampening effect on the links between the central parity and its determinants, reflecting that Chinese authorities do not hesitate to adjust their policy actions under threat of high volatility.

Keywords: China¡¯s Exchange Rate Policy; Currency Basket; Multiplicative Interaction Model; Onshore and Offshore RMB Rates; Volatility (search for similar items in EconPapers)
JEL-codes: F31 F33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mon and nep-tra
Date: 2017-03
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