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Explaining the Transition Between Exchange Rate Regimes

Paul Masson () and Francisco Ruge-Murcia ()

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: This paper studies the transition between exchange rate regimes using a Markov chain model with time-varying transition probabilities. The probabilities are parameterized as nonlinear functions of variables suggested by the currency crisis and optimal currency area literature. Results using annual data indicate that inflation, and to a lesser extent, output growth and trade openness help explain the exchange rate regime transition dynamics.

Keywords: Exchange rates; hollowing out hypothesis; regime change; Markov chains; pegs; floating (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-ifn
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:15-2003

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