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| How to Realize the Exchange Policy Target? Based on the Links between Onshore and Offshore Exchange Rates |
| WANG Fang, GAN Jingyun, QIAN Zongxin, HE Qing
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| School of Finance , Renmin University of China |
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Abstract Renminbi internationalization has created an active offshore RMB market where the exchange rate frequently diverges from the onshore market. Using threshold cointegration models, we explore dynamic interactions between the offshore and onshore RMB exchange rates. Using the data between Nov. 2010 and Nov. 2015, we find that there are dynamic and nonlinear interactions. The onshore market leads the offshore market when the price difference is moderate. When the difference is above a threshhold level, offshore and onshore exchange market become more segmented. The onshore exchange return exhibits momentum while offshore exchange return shows mean reversion. In this case, capital control policies have strong impacts on the dynamics of the RMB exchange rate.
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Received: 10 November 2015
Published: 01 January 1900
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