The Regime-Dependent Determination of Credibility: A New Look at European Interest Rate Differentials

Tillmann Peter
Additional contact information
Tillmann Peter: Universität Bonn,Bonn, Germany

German Economic Review, 2003, vol. 4, issue 4, 409-431

Abstract: With persistence in macroeconomic variables two aspects of exchange rate credibility emerge whose relative importance varies over time. Both aspects have opposite implications for the relation between fundamentals and credibility. Hence, the effect of policy measures on interest rate differentials becomes ambiguous. In this paper a Markov-switching VAR that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent determination of credibility for major EMS currencies. Regime-dependent impulse response functions reveal substantial differences in the response of spreads to macroeconomic shocks across regimes.

Keywords: Regime-switching; VAR; interest rate differentials; regime-dependent impulse response functions; credibility (search for similar items in EconPapers)
Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/j.1465-6485.2003.00087.x (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:germec:v:4:y:2003:i:4:p:409-431

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/ger/html

DOI: 10.1111/j.1465-6485.2003.00087.x

Access Statistics for this article

German Economic Review is currently edited by Peter Egger, Almut Balleer, Jesus Crespo-Cuaresma, Mario Larch, Aderonke Osikominu and Georg Wamser

More articles in German Economic Review from De Gruyter
Bibliographic data for series maintained by Peter Golla ().