The Renminbi Central Parity: An Empirical Investigation

Pacific Economic Review, Volume 23, Issue 2, Pages 164-183, May 2018

33 Pages Posted: 20 Jun 2016 Last revised: 22 Jul 2018

See all articles by Yin-Wong Cheung

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance; University of California, Santa Cruz - Department of Economics; University of California at Santa Cruz - Department of Economics

Cho-Hoi Hui

Hong Kong Monetary Authority - Research Department

Andrew Tsang

Hong Kong Monetary Authority

Multiple version iconThere are 2 versions of this paper

Date Written: April 20, 2018

Abstract

On August 11, 2015, China revamped its procedure for setting the official central parity of the renminbi (RMB) against the US dollar. Our empirical investigation suggests that the intertemporal dynamics of China’s central parity shifted after this policy change, though the deviation of the RMB offshore rate from the central parity and the US dollar index remained the two significant determinants of central parity after the policy change. In contrast, the VIX index only offered explanatory power up to August 2015. Thereafter, the onshore RMB rate and the difference between the one-month offshore and onshore RMB forward points have significant impacts on the central parity. While the US dollar index effect remains, we find no evidence of a rate-fixing role for the RMB exchange rate against the currency basket announced by China in December 2015.

Keywords: China, RMB, exchange rate policy, central parity rate, on-shore and off-shore rates

JEL Classification: F31, F33, G15, G17, G18

Suggested Citation

Cheung, Yin-Wong and Hui, Cho-Hoi and Tsang, Andrew, The Renminbi Central Parity: An Empirical Investigation (April 20, 2018). Pacific Economic Review, Volume 23, Issue 2, Pages 164-183, May 2018. Available at SSRN: https://ssrn.com/abstract=2797968 or http://dx.doi.org/10.2139/ssrn.2797968

Yin-Wong Cheung

City University of Hong Kong - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

435 Engineering 2
Santa Cruz, CA 95064
United States
831-459-4247 (Phone)
831-459-5077 (Fax)

University of California at Santa Cruz - Department of Economics ( email )

1156 High Street
Santa Cruz, CA 95064
United States

Cho-Hoi Hui (Contact Author)

Hong Kong Monetary Authority - Research Department ( email )

Hong Kong
China

Andrew Tsang

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre
Hong Kong
Hong Kong

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