Abstract
Using the spillover index method proposed by Diebold and Yilmaz(2012),we examine the return spillover effect between oil market and three major markets of the RMB exchange rate (CNY, NDF, CNH market ) .We find that there exists a return spillover effect between oil market and three RMB exchange rate markets, and oil price is the absolute contributor of information overflow. Furthermore, we explore the impact of “811” exchange rate reform on the relationship between oil and exchange rate market. We find after the reform, the spillover from oil market to exchange rate market decreases while the spillover in the opposite direction increases. We also employ the rolling window technique and find return spillovers between the oil and exchange rate markets are time-varying.
Highlights
1.1 Research backgroundOil is an important energy source and strategic material for a country
Because charts take up a lot of space, they are no longer shown. It can be seen from the above study that there are return spillovers between the oil market and the RMB exchange rate markets
The spillover varies over time, and there is a difference in the spillover of the three exchange rate markets
Summary
Since 2017, China has overtaken the United States to become the world's largest oil importer. China's external dependence on oil has risen to 69.8% in 2018. With the development of crude oil futures market, crude oil has gone beyond the properties of energy, with certain financial attributes. Fluctuations in crude oil prices are affected by supply and demand, and by other financial market interactions, such as exchange rate markets. China's exchange rate market has experienced rapid development in recent years. The exchange rate reform has brought a major impact on the exchange rate market and indirectly affected other financial markets as well as commodity markets. There have been many research articles on the relationship between international oil prices and the RMB exchange rate, it still makes sense to study the subject today
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