Cross-correlations between RMB exchange rate and international commodity markets

Xinsheng Lu, Jianfeng Li, Ying Zhou, Yubo Qian

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14 Citations (Scopus)

Abstract

This paper employs multifractal detrended analysis (MF-DFA) and multifractal detrended cross-correlation analysis (MF-DCCA) to study cross-correlation behaviors between China's RMB exchange rate market and four international commodity markets, using a comprehensive set of data covering the period from 22 July 2005 to 15 March 2016. Our empirical results from MF-DFA indicate that the RMB exchange rate is the most inefficient among the 4 selected markets. The results from quantitative analysis have testified the existence of cross-correlations and the result from MF-DCCA have further confirmed a strong multifractal behavior between RMB exchange rate and international commodity markets. We also demonstrate that the recent financial crisis has significant impact on the cross-correlated behavior. Through the rolling window analysis, we find that the RMB exchange rates and international commodity prices are anti-persistent cross-correlated. The main sources of multifractality in the cross-correlations are long-range correlations between RMB exchange rate and the aggregate commodity, energy and metals index.

Original languageEnglish
Pages (from-to)168-182
Number of pages15
JournalPhysica A: Statistical Mechanics and its Applications
Volume486
DOIs
Publication statusPublished - 15 Nov 2017

Keywords

  • Energy markets
  • Impulse response function
  • PBOC monetary policy
  • RMB foreign exchange rate

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