THE REGIME-DEPENDENT EVOLUTION OF CREDIBILITY: A FRESH LOOK AT HONG KONG'S LINKED EXCHANGE RATE SYSTEM

Boris Blagov and Michael Funke

Macroeconomic Dynamics, 2019, vol. 23, issue 6, 2434-2468

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.

Date: 2019
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Related works:
Working Paper: The regime-dependent evolution of credibility: A fresh look at Hong Kong's linked exchange rate system (2015)
Working Paper: The regime-dependent evolution of credibility: A fresh look at Hong Kong s linked exchange rate system (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:23:y:2019:i:06:p:2434-2468_00

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