An Empirical Analysis On The Co-movements Between Onshore And Offshore RMB Exchange Rate Before And After The August 11^th RMB Reform

On August 11 th 2015,People's Bank of China announced measures to optimize the pricing model for the central parity rate.The said measures effectively improved the onshore interbank FX pricing mechanism towards a more market-driven model and constitutes a major policy during China's Foreign Exchange Market reform process.Since the reform was adopted,the onshore and offshore RMB exchange rates have demonstrated a different way of interaction compared with before the reform.Based on market figures before and after the reform,this paper empirically analyses the influence of the reform measures on the co-movement mechanism between the onshore and offshore RMB exchange rates by adopting Co-integration Test and Granger Causality Test and has come to the conclusion that CNH has been playing a leading role in CNY's movement since the adoption of the reform and is becoming a dominant factor in the RMB FX pricing.With the increasingly tightened inter-linkage between the onshore and offshore RMB exchange market,this study on its co-movement mechanism could serve as a basis for China's macro currency risk management in order to formulate more oriented regulatory measures.