STATE-CONTINGENT AND TIME-CONTINGENT SWITCHES OF EXCHANGE-RATE REGIME

Recent papers have analysed the effects of Britain's return to gold in 1925. One line of argument has been that the return to gold was a sta te-contingent regime switch. An alternative view is that it was time-c ontingent. This paper shows that these approaches are not mutually exc lusive. The solution for the exchange rate is derived in a model where a switch to a fixed rate takes place either when a state-contingent t rigger is reached or at a fixed time, whichever is the sooner. State-c ontingent and time-contingent elements are thus combined within the sa me model.