Time-Varying Versus Fixed Weights in Exchange-Market Pressure Indices: Evidence From Tests Using Latin American Data

Scott Hegerty

Bulletin of Applied Economics, 2015, vol. 2, issue 1, 21-36

Abstract: Years after the 2008 Global Financial Crisis, currencies worldwide are still susceptible to spillovers not only from foreign currency markets, but also from shocks to stock or commodity prices. Understanding these spillovers is essential for policymakers to respond properly, yet defining ?crisis? periods can often be difficult. This paper proposes two alternative weighting schemes that can be used in the creation of an index of ?exchange market pressure? (EMP), constructing them, as well as a more traditional index, for five Latin American nations and three other emerging markets. Vector Autoregressive (VAR) analysis shows that the two new indices are less likely to find evidence of currency spillovers. We therefore conclude that these differences among measures make the new indices less likely to replace the baseline measure in econometric studies.

Keywords: Exchange Market Pressure; Weights; Time Series; Latin America (search for similar items in EconPapers)
JEL-codes: C10 F31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rmk:rmkbae:v:2:y:2015:i:1:p:21-36

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