A Var Analysis of Exchange Market Pressure: A Case Study for the MENA Region

Ahmed Kamaly () and Nese Erbil
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Ahmed Kamaly: Economics Department, American University in Cairo

No 2025, Working Papers from Economic Research Forum

Abstract: Recent currency crises in Asia and Latin America have once again raised the question of how policymakers can successfully defend exchange rates. In a managed exchange rate regime, exchange rate pressure can be translated into nominal devaluation and/or loss in international reserves. To capture this pressure, the exchange market pressure (EMP)- the sum of exchange rate depreciation and reserve outflows (scaled by base money)- was calculated and tested by a vector autoregression(VAR) framework for those MENA region countries (Egypt, Tunisia, and Turkey) adopting managed floating exchange rate regimes. The VAR framework enables us first to test whether contractionary policy- either a rise in real interest rate differential or a decrease in net domestic credit- has the expected effect on the exchange market pressure; and, second, to reckon how monetary authority uses its available short-term monetary tools to ease an increase in EMP.

Pages: 23 pages
Date: 2000-07-09, Revised 2000-07-09
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Citations: View citations in EconPapers (5)

Published by The Economic Research Forum (ERF)

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