An Empirical Study On The Linkage Between RMB Offshore Market And Onshore Market

Offshore center is a key step in the internationalization of RMB. However, domestic scholars only discuss the significance of establishing offshore center and the relationship between the two markets. With no regard to the mechanism between onshore and offshore marketTherefore, the focus of this paper is the impact of the offshore RMB market development on China’s exchange rate liberalization. The paper uses VAR model, GARCH-BEEK model and DCC-MGARCH model to analyze the mean spillover effect and volatility spillover effect and dynamic correlation coefficient of CNY market, NDF market and CNH market. Then it divides the data into three stages to test the degree of China’s exchange rate market liberalization. The emphasis is whether the constant expansion of the RMB offshore market forces the exchange rate market liberalization and promotes the reform of the financial system of the Mainland.The following conclusions are obtained,1, from2005to2008, the offshore market leads mean spillover effect to onshore unidirectionaly in long-term and bi-directional in short-term, volatility spillover effect is not obvious, dynamic correlation coefficient is good. On the whole, the linkage between the two markets is obvious. China’s exchange rate market has a high degree of liberalization2, from2008to2010, the offshore market leads mean spillover effect to onshore unidirectionaly, volatility spillover effect is obvious, dynamic correlation coefficient is low.On the whole, the linkage relationship is not obvious. China’s exchange rate market has a low degree of liberalization3, from2010to2013, the offshore market leads mean spillover effect to onshore unidirectionaly in long-term and bi-directional in middle or short term, volatility spillover effect is obvious, dynamic correlation coefficient is high. On the whole, the linkage between the two markets is obvious. China’s exchange rate market has a higher degree of liberalization4, the offshore market in Hong Kong promotes exchange rates liberalization. CNY leads mean spillover effect to CNH unidirectionaly, volatility spillover effect is obvious, dynamic correlation coefficient is very high. CNY is challenging the NDF market pricing right through the CNH market. The offshore market in Hong Kong promotes exchange rates liberalization.