Title: Forecasting renminbi quotes in the revised Chinese FX market - can we get implications for the onshore/offshore spread-behaviour?

Authors: Christian Von Spreckelsen; Frederik Kunze; Torsten Windels; Hans-Jörg Von Mettenheim

Addresses: Institute of Information Systems Research, Gottfried Wilhelm Leibniz Universität, Königsworther Platz 1, 30167 Hannover, Germany ' Norddeutsche Landesbank Girozentrale, Department of Economics, Friedrichswall 10, 30159 Hannover, Germany ' Norddeutsche Landesbank Girozentrale, Department of Economics, Friedrichswall 10, 30159 Hannover, Germany ' Institute of Information Systems Research, Gottfried Wilhelm Leibniz Universität, Königsworther Platz 1, 30167 Hannover, Germany

Abstract: Since 2011 China attempts to internationalise its currency by allowing more cross-border trade to be settled in renminbi (RMB). Via the so-called RMB Trade Settlement Scheme trade partners are able to pay and to be paid in RMB offshore. Due to the mostly closed mainland (onshore) market, both markets - dealing with the same currency (RMB) - are separated, whereas CNY refers to the onshore and CNH refers to the offshore market. In this paper, we provide a two-step investigation of the RMB markets. First, we investigate the short-term forecasting performance of spot CNY with GARCH-type and neural network models. Second, we attempt to uncover the benefits of relationships between onshore and offshore RMB. This is achieved by simulating both RMB time series in a multivariate way. Our conclusion is that our proposed models lead to a better understanding of the still young volatility behaviour of the two different RMB series.

Keywords: renminbi markets; spread behaviour; spot prices; derivatives forecasting; neural networks; GARCH; China; foreign exchange markets; RMB markets; onshore RMB; offshore RMB; short-term forecasting; modelling; simulation.

DOI: 10.1504/IJEPEE.2014.059896

International Journal of Economic Policy in Emerging Economies, 2014 Vol.7 No.1, pp.66 - 76

Available online: 18 Mar 2014 *

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