In this paper we demonstrate that there is evidence of an unstable and nonlinear re-lationship between fundamentals and exchange rates. Modeling this time-varying nature of the importance of fundamentals in a Markov switching framework substan-tially improves the fit of the real interest rate...

We examine the dynamics of bank lending to the private sector for countries of the Euro area by applying a Markov switching error correction model. We identify for Belgium, Germany, Ireland and Portugal stable, mean reverting regimes and unstable regimes with no tendency to return to the long...

We estimate monetary policy rules for six central and eastern European countries (CEEC) by taking changes in the policy settings explicitly into account. Distinguishing rather fixed and more flexible exchange rate arrangements we find that for most countries exchange rates played an important...

We investigate the exchange rate volatility of six Central and Eastern European countries (CEEC) between 1994 and 2004. The analysis merges two approaches, the GARCH-model (Bollerslev 1986) and the Markov Switching Model (Hamilton 1989). We discover switches between high and low volatility...