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
Date Written: April 20, 2018
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: Suggested Citation