Reportgreen1989

Exchange Rate Dynamics Under Stochastic Regime Shifts: A Unified Approach

135 citations0/0 files storedNational Bureau of Economic Research

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Stochastic processes and financial applications

Abstract

Techniquesof regulated Brownian motion are used to analyze the behavior of the exchange rate when official policy reaction functions are subject to future stochastic changes.We examine exchange-rate dynamics in alternative cases where the authorities promise (i) to confine a floating rate within a predetermined range and (ii) to peg the currency once it reaches a predetermined future level.Similarities between these and several related examples of regime switching are stressed.

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References

1987Brownian Motion and Stochastic Flow Systems.1977A Monetary Approach To The Exchange Rate: Doctrinal Aspects And Empirical Evidence 1977The Exchange Rate, The Balance Of Payments and Monetary and Fiscal Policy Under A Regime of Controlled Floating 1983Exchange-Rate Dynamics

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