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  • Boris Blagov (a1) and Michael Funke (a2)


An estimated Markov-switching DSGE modeling framework that allows for parameter shifts across regimes is employed to test the hypothesis of regime-dependent credibility of Hong Kong's linked exchange rate system. The baseline model distinguishes two regimes with respect to the time-series properties of the risk premium. Regime-dependent impulse responses to macroeconomic shocks reveal substantial differences in spreads. To test the sensitivity of the results, a number of robustness checks are performed. The findings contribute to efforts at modeling exchange rate regime credibility as a nonlinear process with two distinct regimes.


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Address correspondence to: Boris Blagov, RWI – Leibniz Institute for Economic Research, Hohenzollerznstrasse 1-3, 45128, Essen, Germany; e-mail:


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We would like to thank William A. Barnett, two anonymous referees and an associate editor for valuable comments and suggestions on an earlier draft. The usual disclaimer applies.



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