TY  - JOUR
AU  - Flood,Robert P.
AU  - Garber,Peter M.
TI  - A Model of Stochastic Process Switching
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 626
PY  - 1983
Y2  - September 1983
UR  - http://www.nber.org/papers/w0626
L1  - http://www.nber.org/papers/w0626.pdf
N1  - Author contact info:
Robert Flood
Notre Dame
E-Mail: rflood1@nd.edu

Peter M. Garber
Deutsche Bank
60 Wall Street
New York, NY 10005
Tel: 212/250-5466
Fax: 212/250-2628
E-Mail: peter.garber@db.com
AB  - In this paper we develop a rational expectations exchange rate model which is capable of confronting explicitly agents' beliefs about a future switch in exogenous driving processes. In our set-up the agents know with certainty both the initial exogenous process and the new process to be adopted when the switch occurs. However, they do not know with certainty the timing of future switch as it depends on the path followed by the (stochastic) exchange rate. The model is discussed in terms of the British return to pre-war parity, in 1925. However, our results are applicable to a variety of situations where process switching depends on the motion of a key endogenous variable.
ER  -