Exchange Rate Dynamics in Anticipation of Time-Contingent Regime Switching: Modelling the Effects of a Possible Delay

Posted: 25 May 2017

See all articles by Bernd Wilfling

Bernd Wilfling

Westfälische Wilhelms-Universität

Wolfgang Maennig

Universität Hamburg, Faculty of Business, Economics and Social Sciences

Date Written: 2001

Abstract

The procedure of fixing a currently floating exchange rate at a given (and publicly announced) future date has a broad range of applications. Based on a (continuous-time) monetary exchange rate model with flexible prices, this paper analyzes exchange rate dynamics during the transition from floating to fixed rates in a situation in which market participants are uncertain about adherence to the fixing date and in which they take account of a possible delay in the regime switch. The closed-form solutions derived here allow us to quantify announcement effects as well as effects on the exchange rate variance caused by news that significantly changes the market’s assessment of uncertainty.

Keywords: exchange rate regime switches, stochastic processes, mixtures of distributions, uncertainty

JEL Classification: F31, F33

Suggested Citation

Wilfling, Bernd and Maennig, Wolfgang, Exchange Rate Dynamics in Anticipation of Time-Contingent Regime Switching: Modelling the Effects of a Possible Delay (2001). Journal of International Money and Finance, Vol. 20, 2001. Available at SSRN: https://ssrn.com/abstract=2973145

Bernd Wilfling

Westfälische Wilhelms-Universität ( email )

Professur für Empirische Wirtschaftsforschung
Am Stadtgraben 9
Münster, 48143
Germany
+49 - 251 - 83 25040 (Phone)
+49 - 251 - 83 25042 (Fax)

Wolfgang Maennig (Contact Author)

Universität Hamburg, Faculty of Business, Economics and Social Sciences ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

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