Cointegration and causality among the onshore and offshore markets for China's currency

David Owyong, Wing Keung WONG*, Ira Horowitz

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    29 Citations (Scopus)


    China has taken steps to develop offshore markets for renminbi trading and to liberalize exchange-rate determination in its onshore market. We examine the interaction between onshore and offshore markets with attention to how the interaction has been affected by widening of the onshore trading band first in April 2012 and further in March 2014. Ties between the onshore and offshore markets were closest before the first band widening and steadily loosened thereafter. We further study the cointegration and lead-lag effects between offshore and onshore spot and forward markets and show that there is a long-term equilibrium relationship between any pair of them. Our results suggest stronger causality running from the spot onshore rate to the spot offshore rate than vice versa. Between the spot and forward markets, there is evidence of bidirectional linear and nonlinear causality, which implies foreign impulses have had an influence on the domestic market.

    Original languageEnglish
    Pages (from-to)20-38
    Number of pages19
    JournalJournal of Asian Economics
    Publication statusPublished - 1 Dec 2015

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics

    User-Defined Keywords

    • Cointegration
    • Liberalization
    • Onshore and offshore markets
    • Spot and forward markets


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