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TVTPTime-Varying Transition Probabilities
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Furthermore, by employing time-varying transition probabilities, the probability of switching from a tranquil regime to a crisis regime can be modelled as a function of a country's fundamentals.
Martinez-Peria (2002) used a Markov switching model with time-varying transition probabilities to model the currency crisis in the EMS in the early 1990s.
With this explanatory variable, we parameterize the time-varying transition probabilities for S2 as
Parameter estimates for the Markov-switching model with time-varying transition probabilities are in Table 4.
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