Exchange Market Pressure Index in Pakistan

Imran Naveed Khan ()
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Imran Naveed Khan: State Bank of Pakistan

No 35, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: This study employs Siregar and Pontines (2007) measure of Exchange Market Pressure Index (EMPI), a weighted average of exchange rate changes, reserve changes, and interest rate changes on monthly basis for period from Jul-1995 to Dec-2008 in Pakistan. One of the well- known uses of the index i.e., determining a threshold level for signal of pressure is also demonstrated. We identify twenty four signals of exchange market pressure during study period, ten of which were in a short period of three years, (FY96 to FY98). In order to address these pressures, government of Pakistan signed six programs with IMF during the period under review. The study also examines the relationship between EMPI, inflation, current account balance, and domestic credit. The results show that inflation, domestic credit and current account balance have significant effects on the exchange market pressure index. Within the domestic credit, the government sector credit significantly affects the EMPI.

Keywords: Exchange market pressure; exchange rate; threshold level (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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