Macro Announcements and Volatilities of the Renminbi Onshore and Offshore Exchange Rates

36 Pages Posted: 17 Apr 2020

See all articles by Zhitao Lin

Zhitao Lin

Jinan University - College of Economics and Institute of Finance

Tao Tang

Jinan University

Date Written: December 1, 2019

Abstract

We examine how Chinese and US macro announcements affect the volatilities of Chinese renminbi (RMB) onshore (CNY) and offshore (CNH) exchange rates. We find that RMB exchange rates will generally become more stable if either China or US display better economic performance than expectation and otherwise more volatile if China or US fundamentals perform worse than expected. We also find the dominant role of Chinese macro news on the volatilities of both CNY and CNH from the perspective of average magnitudes. Decomposing the volatility into long-term trend and short-term cyclical components, we discover a closer connection of macro news effect with the long-run component of the volatility. Moreover, we focus on the isolated effects of negative and positive surprises, and uncover greater influence of Chinese announcements on CNY while greater response of CNH to US announcements. However, we find no evidence of asymmetric effects of positive versus negative surprises. Considering the event of China’s exchange rate reform in 2015, our results suggest a growing impact of Chinese macro announcements on RMB volatility determination.

Keywords: Macro announcements, RMB exchange rate volatility, CNY, CNH

JEL Classification: F31, G15

Suggested Citation

Lin, Zhitao and Tang, Tao, Macro Announcements and Volatilities of the Renminbi Onshore and Offshore Exchange Rates (December 1, 2019). Available at SSRN: https://ssrn.com/abstract=3565647 or http://dx.doi.org/10.2139/ssrn.3565647

Zhitao Lin (Contact Author)

Jinan University - College of Economics and Institute of Finance ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

Tao Tang

Jinan University ( email )

Huang Pu Da Dao Xi 601, Tian He District
Guangzhou, Guangdong 510632
China

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