Download This PaperExchange Rate Dynamics Under Stochastic Regime Shifts: a Unified Approach
28 Pages Posted: 23 Apr 2004 Last revised: 2 Oct 2022
Date Written: February 1989
Abstract
Techniques of 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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Kenneth Froot (Contact Author)
Harvard University Graduate School of Business ( email )
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HOME PAGE: http://https://scholar.harvard.edu/kenfroot
Peterson Institute for International Economics ( email )
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United States
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