Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212801 
Year of Publication: 
2014
Series/Report no.: 
BOFIT Discussion Papers No. 15/2014
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
​This paper takes seriously the idea that the coefficients of a VAR and the variance of shocks may be time-varying and so employs a Markov regime-switching VAR model to describe and analyse the time-varying credibility of Hong Kong's currency board system. The endogenously estimated discrete regime shifts are made dependent on macroeconomic fundamentals. This enables us to determine which changes in macroeconomic variables can trigger switches between the low and high credibility regimes. We carry out extensive testing to search for the most appropriate specification of the Markov regime-switching model. We find strong evidence of regime switching behaviour that portrays the timevarying nature of credibility in the historical data. Our own conditional volatility index provides anticipatory signals and amplifies the regime-switching transition probabilities. Publication
Subjects: 
Markov regime-switching VAR
exchange rate regime credibility
Hong Kong
JEL: 
C11
C32
F31
F41
Persistent Identifier of the first edition: 
ISBN: 
978-952-6699-94-3
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.