## Stochastic Regime Switching an Stabilizing Policies Within Regimes |

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absorbing barrier asset prices assume asymptotic distribution behavior boundary conditions capital controls capital flows concentrated conditional mean conditional variance continuous time process define depicts this distribution distribution of exchange distribution of fundamentals domestic currency dx/df Economic effects upon fundamentals empirical evidence equation European Monetary System example exchange rate distribution exchange rate solution exogenous parameters expected evolution family of solutions Figure fixed exchange rate fixed rate system Flood and Garber follow Brownian motion Froot and Obstfeld fundamentals follow Brownian greater frequency implies incorporated inside the back Instructions inside intra-regime intervention policies intra-regime policies intuition James Heckman limit diffusion list of NBER Louvre Accord market fundamentals market-determined fundamentals process mean-reverting NBER Working Papers Number Obstfeld 1991a official intervention Papers and Reprints Partial Subscription probability function probability of intervention process of fundamentals Proof of Proposition restrictions sigma algebra spot exchange rate stabilizing intervention stylized target bands target level target zone traders variables zero