Exchange market pressure: some caveats in empirical applications

Simone Bertoli, Giampiero Gallo () and Giorgio Ricchiuti

Applied Economics, 2010, vol. 42, issue 19, 2435-2448

Abstract: The Exchange Market Pressure (EMP) index, developed by Eichengreen et al. (1994), is widely used as a tool to signal whether pressure on a currency is softened or warded off through monetary authorities' interventions or, rather, a currency crisis has originated. In this article we show how the index is sensitive to some assumptions behind the aggregation of the information available (exchange rates, interest rates and reserves), especially when emerging countries are involved. Specifically, we address the way exchange rate variations are computed and the impact of different definitions of the reserves, and we question the constancy of the weights adopted. These issues compound with the choice of a fixed threshold when crisis episodes are identified through the EMP index. As a result, one should exert caution in subsequent econometric analyses where a dependent binary variable is built to identify crisis periods.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840701858059 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Exchange Market Pressure: Some Caveats In Empirical Applications (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:42:y:2010:i:19:p:2435-2448

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840701858059

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().