Spillover effects of RMB exchange rate among RCEP member countries: Empirical evidence from time-frequency domain approach

Abstract

This study employs time-frequency domain approach to investigate the spillover effects of renminbi (RMB) exchange rate among the Regional Comprehensive Economic Partnership (RCEP) member countries. Utilizing daily data spanning from August 2010 to August 2022, we find that currencies in the RCEP region demonstrate significant interaction, which is primarily driven by short-term spillover, and ascend in response to major economic and political events. With respect to the influence of RMB, it displays frequency bands heterogeneity. Specifically, RMB tends to be a net receiver in the short term, but it primarily functions as a net transmitter in the long term. Notably, our analysis of time-varying spillover effects indicates that both domestic exchange rate regime reforms and external political and economic shocks amplify the net spillover effects of the RMB, which may be reflected in short-term connectedness or captured by long-term connectedness.