The Effect of CNH Market on Relationship of RMB Spot Exchange Rate and NDF
Using vector autoregressive model (VAR), Granger causality test, MA(1)-GARCH(1,1) model, this paper made a Granger causality test between RMB spot exchange rate (SPOT) and NDF, and impulse response and spillover effects analysis between the two markets comparatively before and after the establishment of Hong Kong’s offshore RMB market (CNH). The result shows that after the establishment of CNH, the guidance effect from NDF market on SPOT exchange rate has been weakened. Granger causality, yield spillovers and volatility spillovers between the NDF and SPOT have undergone significant changes. Therefore, the development CNH market has important implications for pricing mechanism of the RMB spot exchange rate pricing.
KeywordsCNH RMB spot exchange rate (SPOT) NDF
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The research is supported by the key Building Subject of Shanghai Board of Education — “The Operation and Control of Economics System” (J50504).
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