The dynamic effects of macroeconomic announcements on the volatilities of renminbi onshore and offshore exchange rates

Abstract

This study investigates the dynamic effects of Chinese and US macroeconomic announcements on the daily volatilities of CNY/USD and CNH/USD exchange rates. Under the MS-VARX framework, we find both exchange rates switch between a low and high volatility regime frequently and important announcements in the literature show significant and dynamic impacts. We also find that both onshore and offshore RMB volatilities are affected by a wider range of US and Chinese announcements in the high volatility regime. Furthermore, the average influence of Chinese announcements dominates in the offshore market, especially when CNH is more volatile. In contrast, the US announcements are dominant in the onshore market in terms of the average influence, but their magnitude declines dramatically after RMB market switching to the high volatility state. These dynamic patterns suggest a growing role of Chinese announcements especially in volatile times.

Keywords: Macroeconomic announcements, RMB exchange rate volatility, CNY, CNH, MS-VARX model

JEL Classification: F31, G15