Effectiveness of the RMB exchange rate regime reform: A new perspective from MF-DMA and MF-X-DMA

This paper investigates the successes and flaws of China's RMB exchange regime reform launched on August 11, 2015, from three perspectives: The market efficiency, interaction between the onshore and offshore RMB markets and the effectiveness of Chinese monetary policy. The dataset covers the period of June 27, 2011-April 20, 2018, and contains 1,435 observations for each series, including the daily closing values of the spot RMB exchange rate, 1-, 3-, 6-, and 9-month forward exchange rates, and 7-day Shanghai Interbank Offered Rate (Shibor). Our empirical results show that the reform of China's exchange rate regime in 2015 has had both successes and flaws, which was not completely successful as a whole. The successful part of the reform consists of its contribution in enhancing the efficiency of the RMB exchange rate market, reducing the disturbance caused by monetary policy on the onshore market, and increasing the influence of monetary policy on the offshore market. The unsuccessful part of the exchange regime reform consists of its role in reducing the correlation between the onshore and offshore markets. (C) 2019 Elsevier B.V. All rights reserved.