Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/39249
Authors: 
Tillmann, Peter
Year of Publication: 
2001
Series/Report no.: 
IWP Discussion Paper 2001/2
Abstract: 
Once you allow for persistence in macroeconomic variables, two aspects of exchange rate credibility emerge whose relative importance can vary over time. 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 countries. The model separates two regimes that are distinct with respect to the time series properties of the interest rate spread. Regime-dependent impulse response functions reveal substantial differences in the response of spreads to macroeconomic shocks across regimes.
Subjects: 
Regime-switching
VAR
interest rate differentials
regimedependent impulse response functions
credibility
JEL: 
E4
F3
Document Type: 
Working Paper

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