Analysis Of Inter-linkages Between Onshore And Offshore Renminbi Markets

With the objects being interest rate and exchange rate,this paper employed VAR and DCC MVGarch models to study the inter-linkages of the onshore and offshore Renminbi markets by focusing on the price spillover and volatility spillover effects.Empirically we found that there's generally a strong inter-linkage between onshore and offshore Renminbi foreign exchange markets,much stronger with forwards of longer terms,whichever price spillover or volatility spillover effect is concerned.Non-Delivery Forward(NDF)appears to be at the heart of information,followed by onshore spot market.Meanwhile,when it comes to interest rate market,it is a different story that the inter-linkage turns out to be weak.It is also stated that with more free and active trading,HK offshore market is proved to be better at information reception as in both price and volatility spillovers.Thus,some advices were raised accordingly,including strengthening censorship on capital account liberalization and adjusting follow-up policies,bettering domestic financial market in case of shocks brought about by the development of offshore market,clarifying and differentiating strategic plans for Shanghai and Hong Kong,etc.