The onshore-offshore interaction of RMB market: a high-frequency analysis

With 10-minute data from Nov 2014 to Jan 2015, a threshold autoregression (TAR) model is estimated to assess the exchange rate differential between onshore and offshore RMB market, and the following result is in order. (i) The threshold effect is verifed during sample period, around 40 bps on average. (ii) The persistence of onshore/onshore gap is quite similar across regimes, even after some policy change on capital control. (iii) Beyond threshold level, external volatility becomes important determinant of the exchange rate differential. The announcement effect of median price on offshore market is also proved from tick data.