Abstract
Using the offshore and onshore market data of the exchange rate between US dollars and Chinese RMB, we analyze the dynamic dependence relation and volatility spillover effect between RMB exchange rates in the offshore and onshore market with the dynamic conditional correlation multivariate volatility Copula and BEKK models, as well as the linkage between these markets that may occur in the extreme market conditions. We find that the volatility clustering and persistence of the RMB exchange rate in the offshore and onshore markets are significant, and there is a two-way volatility spillover effect between these two markets, highlighting the risk transmission mechanism between the RMB exchange rate in the offshore and onshore markets. There is also a significantly positive time-varying dependence relation between the RMB exchange rate in the offshore and onshore markets, with a gradual the price convergence. These findings suggest that risk contagion should be carefully considered between different RMB exchange rate markets for further promoting the marketization formation mechanism of RMB exchange rate, and provides a reference of investigating the forward premium bias puzzle of the currency markets.
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