Computable Bounds for Extreme Event Probabilities in Stochastic Economic Models

John Stachurski ()

No 927, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: The paper introduces a multiplicative drift condition for evaluating stochastic economic models. The drift condition is shown to permit computation of quantitative bounds for extreme event probabilities in terms of the model primitives. By way of illustration, the technique is applied to a simple threshold autoregression model of exchange rates.

Pages: 15 pages
Date: 2005
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