A Empirical Study On Relationship Between RMB Onshore Market And RMB Offshore Market

This paper mainly studies the exchange rate relationship between RMB Hongkongoffshore market (CNH) and RMB onshore market (CNY). This dissertation focus on thevolatility spillover and mean value spillover between this two markets by establishingGARCH model. Then applying VAR model and impulse response analysising to portraythe dynamic correlations between offshore market and onshore market and understandthe dymanic characteristic through variance decomposition.Through above study,I hopeit will help to predict the market changes and avoid exchange rate risk.Furthermoreput forward policy suggestions on the construction of RMB offshore market and theinternationalization of RMB.The thesis is mainly devided into three parts. In the first part, we know that theinternationalization of RMB needs support from offshore financial market,on thecontrary, the internationalization of RMB will promote offshore financial marketdevelopment to a higher levelon the contrary after discussing relationship betweenRMB internationalization and offshore market construction and researching theexperiences and lessons of internationalization of other currencys and offshore marketconstruction.So the chinese government should promote RMB internationalization andoffshore market construction simultaneously gradually and steadily. In the secondpart,by establishing GARCH model we find that the spillover effect between these twomarkets is remarkable, which means the feedback channel between two markets issmooth.From perspective of mean value spillover, the forward echange rate of offshoremarket has larger influence on onshore market than spot exchang rate of offshoremarket.Which means onshore RMB has become more sensitive to supply and demandof RMB in the global market because of the development of CNH. We also find thatthe spot exchang rate of onshore market has strong influence on offshore forwardexchange rate,which presents the regulation of change rate on onshore market.Afterall,the relationship between offshore market and onshore market is becomingstronger.In the third part, we put forward the policy recommendations and point outthe development direction of the offshore market.The previous researchs on offshore market generally focus on the relationshipbetween NDF market,CNY and CNH,confined at the theoretical level.We directly research the relationship between offshore market and onshore market which is morecreative and has more realistic background.In short, RMB is still under strict control, foreign exchange management shoulduse the opportunity of RMB internationalization to accelerate the developing of RMBoffshore market and gradually loose the regulations of the entering of domesticinvestors to the offshore market, strengthen the monitoring and early warning of therelevant market, laying the foundation of RMB price discovery mechanism.