The effects of exchange rate regime reform on RMB markets: A new perspective based on MF-DCCA

• Published in: Physica A 2019-05, Vol.522, p.122-134
• Main Authors: Ruan, Qingsong, Bao, Junjie, Zhang, Manqian, Fan, Limin
• Format: Article
• Language: English
• Subjects: Cross-correlation; Exchange rate markets; MF-DCCA; RMB exchange rate reform
• ISSN: 0378-4371; 1873-2119
• DOI: 10.1016/j.physa.2019.01.110

Based on the RMB exchange rate regime reform launched by People’s Bank of China (PBoC) on Aug 11, 2015, we investigate the effects of this reform on the cross-correlations among CNH, NDF and CNY markets using multifractal detrended cross-correlation analysis (MF-DCCA) method. The empirical results show that cross-correlations among CNH, NDF and CNY markets are multifractal. Moreover, we find that this RMB exchange rate reform takes effects, as the persistence and the degree of multifractality of the cross-correlation between these series are weaker after the reform. Furthermore, we find that, after the reform, the persistent cross-correlation for CNH and CNY markets is stronger in the short term but weaker in the long term. While for NDF and CNY markets, the anti-persistent cross-correlation in the short term turn into persistent and persistent cross-correlation in the long term are stronger after the “8.11” RMB exchange rate regime reform. Finally, we find that the fat-tailed distribution is the main source of multifractality for NDF-CNY return series pair after the reform, while for CNH-CNY return series pair, the main source is still long-range correlation. •Cross-correlations between the CNH, NDF and CNY markets are multifractal.•The persistence and the degree of multifractality are weaker after the reform.•Persistent cross-correlation in short run is stronger after reform for CNH-CNY.•For NDF-CNY, persistent cross-correlation in long term is stronger after reform.•Long-range correlation mainly contributes to CNH-CNY’s multifractality.