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| Author: | Dahlquist, M. Gray, S. |
| Title: | Regime-switching and interest rates in the European monetary system |
| Journal: | Journal of International Economics
2000 : APR, VOL. 50:2, p. 399-420 |
| Index terms: | INTEREST RATES EUROPEAN MONETARY SYSTEM ECONOMICS |
| Language: | eng |
| Abstract: | 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, the authors characterize the short rate using a regime-switching model that allows for a differently parameterized mean-reverting square-root process in each regime. The authors 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. |
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