Regime-switching and interest rates in the European monetary system

• 成果类型: Article
• 署名作者: Dahlquist, M; Gray, SF
• 署名单位: Duke University; Stockholm School of Economics; University of Queensland
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/S0022-1996(99)00005-7
• 发表日期: 2000
• 页码: 399-419
• 关键词: interest rate modeling; regime shifts; target zone credibility

摘要

This paper examines the impact that a currency target zone has on short-term interest rates. For a number of countries in the European Monetary System, we characterize the short rate using a regime-switching model that allows fbr a differently parameterized mean-reverting square-root process in each regime. We find that the volatility, the level, and the speed-of-adjustment are all higher in the regime that is operative during speculative attacks and currency crises. Moreover, we allow the conditional probability of being in each regime to be state-dependent so the model can be used to examine questions relating to the likelihood of realignments and the stability of the target zone system. (C) 1999 Elsevier Science BN. All rights reserved. JEL classification: E43; G12.