Stock prices, foreign reserves, and regime collapse

Chi-Chur Chao, Chen Li-Ju (), Shih Wen Hu, Ching-Yi Huang and Vey Wang

Asia-Pacific Journal of Accounting & Economics, 2014, vol. 21, issue 2, 207-225

Abstract: Using a regime collapse model, this paper analyzes the impact of foreign financial disturbances in the foreign exchange market on the economy under the assumption of perfect foresight. When there are foreign financial disturbances and the amount of foreign exchange reserves reaches the threshold, the government contracts the domestic credit so as to prevent an additional decrease in foreign reserves. The results show that the relative scale of the threshold for foreign reserves influences the timing of the regime collapse, the extent of domestic credit contraction and the dynamic adjustment of the economy.

Date: 2014
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DOI: 10.1080/16081625.2014.886655

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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