Exchange rate dynamics under state-contingent stochastic process switching
This paper offers a closed-form solution of a process switching problem, i.e., switching the exchange rate regime from free-floating to a completely fixed one. An example of such regime change is the adoption of the Euro. In contrast to previous studies on the subject, this paper analyzes a specific case when foreign exchange market participants consider both the Euro locking rate and locking date as uncertain. Preceding the locking, the exchange rate is determined by three factors: fundamental, market expectations for the Euro locking rate, and date. The model is used to examine the conditions under which the exchange rate volatility is mitigated by the prospect of locking.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Balázs �gert & László Halpern & Ronald MacDonald, 2006.
"Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues ,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 20(2), pages 257-324, 04.
- Égert, Balázs & Halpern, László & MacDonald, Ronald, 2004. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," CEPR Discussion Papers 4809, C.E.P.R. Discussion Papers.
- Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series wp793, William Davidson Institute at the University of Michigan.
- Balázs Égert & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers 106, Oesterreichische Nationalbank (Austrian Central Bank).
- Wilfling, Bernd & Maennig, Wolfgang, 2001. "Exchange rate dynamics in anticipation of time-contingent regime switching: modelling the effects of a possible delay," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 91-113, February.
- Robert P. Flood & Peter M. Garber, 1982.
"A model of stochastic process switching,"
International Finance Discussion Papers
201, Board of Governors of the Federal Reserve System (U.S.).
- Maurice Obstfeld & Alan C. Stockman, 1983.
NBER Working Papers
1230, National Bureau of Economic Research, Inc.
- Kenneth A. Froot & Maurice Obstfeld, 1989.
"Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach,"
NBER Working Papers
2835, National Bureau of Economic Research, Inc.
- Froot, Kenneth A. & Obstfeld, Maurice, 1991. "Exchange-rate dynamics under stochastic regime shifts : A unified approach," Journal of International Economics, Elsevier, vol. 31(3-4), pages 203-229, November.
- Froot, Kenneth & Obstfeld, Maurice, 1991. "Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach," CEPR Discussion Papers 522, C.E.P.R. Discussion Papers.
- Charles Engel & Kenneth D. West, 2003.
"Exchange rates and fundamentals,"
Federal Reserve Bank of San Francisco, issue Mar.
- Sutherland, Alan, 1995. "State- and time-contingent switches of exchange rate regime," Journal of International Economics, Elsevier, vol. 38(3-4), pages 361-374, May.
- Froot, Kenneth A & Obstfeld, Maurice, 1991.
"Stochastic Process Switching: Some Simple Solutions,"
Econometric Society, vol. 59(1), pages 241-50, January.
- Kenneth A. Froot & Maurice Obstfeld, 1989. "Stochastic Process Switching: Some Simple Solutions," NBER Working Papers 2998, National Bureau of Economic Research, Inc.
- John Williamson, 1994. "Estimating Equilibrium Exchange Rates," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 17.
- Djajic, Slobodan, 1989. "Dynamics of the exchange rate in anticipation of pegging," Journal of International Money and Finance, Elsevier, vol. 8(4), pages 559-571, December.
- Paul R. Krugman, 1988.
"Target Zones and Exchange Rate Dynamics,"
NBER Working Papers
2481, National Bureau of Economic Research, Inc.
- De Grauwe, Paul & Dewachter, Hans & Veestraeten, Dirk, 1999. "Price dynamics under stochastic process switching: some extensions and an application to EMU1," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 195-224, February.
When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:30:y:2011:i:5:p:896-908. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.