Working paper/research report

Publication year: 2001

URL: https://hdl.handle.net/10419/39249

Title of series: IWP discussion paper

Number in series: 2001, 2

Abstract: 

Once you allow for persistence in macroeconomic variables, two aspects of exchange rate credibility emerge whose relative importance can vary over time. Hence, the effect of policy measures on interest rate differentials becomes ambiguous. In this paper, a Markov-switching VAR that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent determination of credibility for major EMS countries. The model separates two regimes that are distinct with respect to the time series properties of the interest rate spread. Regime-dependent impulse response functions reveal substantial differences in the response of spreads to macroeconomic shocks across regimes.

Harvard Citation style: Tillmann, P. (2001) The regime-dependent determination of credibility: A new look at European interest differentials. (IWP discussion paper, 2001, 2). Köln: Institut für Wirtschaftspolitik. https://hdl.handle.net/10419/39249

APA Citation style: Tillmann, P. (2001). The regime-dependent determination of credibility: A new look at European interest differentials. (IWP discussion paper, 2001, 2). Institut für Wirtschaftspolitik. https://hdl.handle.net/10419/39249