The Comovement Of Onshore And Offshore RMB Interest Rates

In recent years,with the accelerating pace of RMB internationalization,RMB offshore financial business is developing rapidly,especially the offshore RMB market in Hong Kong.Due to onshore and offshore markets are different in the legal environment,regulatory conditions and the tax system,the onshore price and offshore price of a country’s currency is different.RMB interest rates also have different price levels in the offshore market and onshore market.Under the condition of China’s continuous interest rate liberalization and gradual liberalization of capital account control,the efficiency of capital flow and information transmission between onshore and offshore RMB markets has been increasing.Therefore,this paper studies the linkages of onshore and offshore RMB interest rates and pricing power attribution.First,this paper analyzes the theoretical basis of onshore and offshore RMB interest rates,including the theory of term structure of interest rates and market linkage theory.Then,the paper analyzed the development of onshore and offshore RMB interest rates and the transmission mechanism between them.In addition,DAG method and SVAR model and prediction error variance decomposition are used to analyze the linkage relationship between onshore and offshore RMB interest rates.In the end,according to the research conclusion,we put forward three policy suggestions:strengthen the construction of Shanghai inter-bank lending market,pay close attention to the stock market and currency financial markets and establish and perfect the system of offshore RMB market arrangement.According to the results of the directed acyclic graphs,there is no contemporaneous causal relationship between onshore and offshore RMB interest rates.Market price information is transmitted from short-term interest rate to long-term interest rate both in onshore market and offshore market.The variance decomposition results indicate that there is little interaction between onshore and offshore markets,and the influence increases with the extension of the predicted period,which means that the interaction between onshore and offshore interest rates has a lag effect.The effect of offshore market on onshore long-term interest rate is greater than that of short-term interest rate,while the effect of onshore market on offshore short-term interest rate is greater than that of long-term interest rate.Recursive variance decomposition results show that although onshore market mostly holds interest rate pricing power,the offshore market has a greater influence than onshore market since 2017,and the risk that onshore market loses interest rate pricing power does exist.