a1 Australian National University
This paper provides conditions for bounding tail probabilities in stochastic economic models in terms of their transition laws and shock distributions. Particular attention is given to conditions under which the tails of stationary equilibria have exponential decay. By way of illustration, the technique is applied to a threshold autoregression model of exchange rates.
The author thanks Vance Martin, Lawrence Uren and Makoto Yano for many helpful comments. This research paper also benefitted from financial support by the Australian Research Council.