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Explaining the Transition between Exchange Rate Regimes *
Author(s) -
Masson Paul,
RugeMurcia Francisco J.
Publication year - 2005
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2005.00407.x
Subject(s) - openness to experience , economics , exchange rate , inflation (cosmology) , markov chain , currency , parameterized complexity , transition (genetics) , devaluation , econometrics , currency crisis , nonlinear system , exchange rate regime , monetary economics , keynesian economics , macroeconomics , mathematics , physics , chemistry , statistics , quantum mechanics , theoretical physics , gene , psychology , social psychology , biochemistry , combinatorics
This paper studies the transition between exchange rate regimes using a Markov chain model with time‐varying transition probabilities. The probabilities are parameterized as nonlinear functions of variables suggested by the currency crisis and optimal currency area literature. Results using annual data indicate that inflation and, to a lesser extent, output growth and trade openness help explain the exchange rate regime transition dynamics.