BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
The regime-dependent evolution of credibility: A fresh look at Hong Kong’s linked exchange rate system
() and Michael Funke
Abstract: An estimated Markov-switching DSGE modelling 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 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. These findings contribute to efforts at modelling exchange rate
regime credibility as a non-linear process with two distinct regimes.
Keywords: Markov-switching DSGE models; exchange rate regime credibility; Hong Kong; (follow links to similar papers)
JEL-Codes: C51; C52; E32; F41; (follow links to similar papers)
34 pages, September 4, 2013
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