The Impact of COVID-19 Outbreak on the RMB Exchange Rate: Evidence from TVP-SV-VAR Model

Using the Time-Varying Parameter-Stochastic Volatility-Vector Auto Regression model, this study examines the dynamic relationship between Non-deliverable Forwards, Stock Index Gap, Interest Rate Gap, and short-term fluctuations of the RMB exchange rate during the early stage of the COVID-19 outbreak. Our findings indicate that these variables exhibit time-varying characteristics and a relatively significant stable trend. Additionally, in the initial phase of the pandemic, there were substantial capital outflows from the Chinese stock market. However, as the Chinese economic situation improved and the government intervened in a timely manner, exchange rate and Non-deliverable Forwards volatility decreased, leading to a slowdown in outflows.