Return and volatility spillovers between the Renminbi and Asian Currencies

• Main Author: CHOW-TAN, Hwee Kwan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Asian currencies; Offshore and onshore Renminbi; Spillovers; Transmission channels; Econometrics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2241; https://ink.library.smu.edu.sg/context/soe_research/article/3240/viewcontent/Chow__2018__Return_and_Volatility_Spillovers_between_RMB_and_Asian_Currencies.pdf
• Institution: Singapore Management University

This paper examines the extent of interdependence between the Chinese Renminbi and Asian currenciesafter the global financial crisis. We combine the distinct influence of offshore Renminbi with the impact ofthe onshore rate on eight Asian currencies (including the Australian dollar). Diebold-Yilmaz spilloverindexes reveal Asian foreign exchange markets are subject to considerable cross-border transmissions. Interms of the US dollar bilateral exchange rates, cross-border transfers of daily return are strongercompared to daily volatility reflecting currency management by regional authorities to curb excessiveexchange rate volatility. Return spillovers from the Renminbi markets to individual Asian foreignexchange markets are generally on par with that from the euro, but are consistently higher than that fromthe yen. The results from country-specific regressions concur that overall the influence of the Renminbi onAsian currencies does not dominate the euro but surpasses that of the yen. Across the Asian currencies,their susceptibility to return spillovers from the Renminbi vary with the strength of the country’s trade orfinancial links with China. The commodity price channel also plays a role in the cross-bordertransmissions of currency shocks.