ABSTRACT
This chapter provides a description of the methodology, mainly based on the vector autoregression model and presents empirical results and related explanation. It discusses the interrelationships between the onshore exchange market (CNY), offshore exchange market (CNH), and Non-deliverable forward (NDF) exchange rate markets. As the renminbi's internationalization accelerates, renminbi (RMB) pricing market has developed into the following areas: the CNY, the CNH, and the NDF market. The chapter introduces the vector autoregression model to estimate the long-run equilibrium relationship. It describes dynamic relationship by estimating the vector autoregressive model and attempt to identify the guiding or lag factor. The chapter introduces impulse response functions, which are widely used in contemporary macroeconomic modeling, to investigate how each time series responds to the shocks of the other two time series in our study. Impulse response functions, usually called shocks by economists, are used to describe how economy reacts over time to exogenous impulses and often modeled in context of a vector autoregression.
