Author:
Blagov Boris,Funke Michael
Abstract
An estimated Markov-switching DSGE modeling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong's linked exchange rate system. The baseline model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse responses to macroeconomic shocks reveal substantial differences in spreads. To test the sensitivity of the results, a number of robustness checks are performed. The findings contribute to efforts at modeling exchange rate regime credibility as a nonlinear process with two distinct regimes.
Publisher
Cambridge University Press (CUP)
Subject
Economics and Econometrics
Cited by
1 articles.
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1. Political stability and credibility of currency board;Journal of International Money and Finance;2023-10