Abstract: The relationship between onshore RMB exchange rate (CNY) and offshore non-deliverable forward exchange rate (NDF) can reflect the effectiveness of the reform of RMB exchange rate formation mechanism, and is helpful to improve the RMB exchange rate formation mechanism. The paper uses Granger causality test and BEKK-MGARCH model to study the returns spillover effect and volatility spillover effect of CNY and NDF. The study finds that the relationship between the two markets has changed significantly before and after the “811”exchange rate reform: from the perspective of returns spillover, the relationship between the two markets has changed from no mutual guidance to a two-way returns spillover; from the perspective of volatility spillover, CNY market had one-way volatility spillover to offshore NDF market before the exchange rate reform, but after the exchange rate reform, this volatility spillover weakened and reversed. Based on the empirical results, the paper suggests such policy recommendations as: establishing RMB exchange rate tracking mechanism, relaxing onshore market control, and establishing onshore NDF market.

Key words: RMB NDF, onshore exchange rate, Granger causality test, BEKK-MGARCH model