Research On The Complex Interaction Between The Onshore RMB Exchange Rate And The Offshore RMB Exchange Rate

In 2009 Chinese central government initiated the strategy of RMB internalization,the Hong Kong Treasury Market Association launched the offshore RMB exchange rate fixed price two years later in 2011,then the People's Bank of China adjusted the reference rate of RMB against the dollar mechanism in 2015.With the help of these measures,the relationship between onshore RMB market and offshore RMB market become more and more complicate.Many researches are taken on that relationship in recent years,however,most of which are carried to study the linear relationship between the two markets by using the traditional VAR and GARCH model.In this paper,the author introduces 3 different Archimede Copulas which can illustrate the financial data well,then establish a Mixed Copula-TARCH-t model that is based on 3 different Copulas introduced previously.Applying several rules,the author finds this Mixed Copula-TARCH-t the best among 4 Copulas to study the nonlinear correlation of the two markets.Combined with the traditional linear analysis,the paper intends to bring a comprehensive knowledge of the complicate relationship between onshore RMB(CNY)exchange rate and offshore RMB(CNH)exchange rate.In the paper,the methods of Granger causality test and error correction model are conducted to analyze the liner relationship between reference rate against US dollar released by PBoC and offshore RMB exchange rate fixed price released by TMA in Hong Kong.It's believed that these is a long-term equilibrium between CNH and CNY exchange rates,meanwhile they both influence on each other due to the results of models above.Furthermore,it's found that the Gumbel function weighs most in the Mixed Copula-TARCH-t which is introduced to study the nonlinear relationship,indicating that there is a big probability of a sharp depreciation in both CNH and CNY exchange rates at the same time.