Exchange Market Pressure and Monetary Policy: Asia and Latin America in the 1990s

Evan Tanner

No 1999/114, IMF Working Papers from International Monetary Fund

Abstract: Exchange market pressure (EMP), the sum of exchange rate depreciation and reserve outflows (scaled by base money), summarizes the flow excess supply of money in a managed exchange rate regime. Examining Brazil, Chile, Mexico, Indonesia, Korea, and Thailand, this paper finds that monetary policy affects EMP as generally expected: contractionary monetary policy helps reduce EMP. The monetary policy stance is best measured by domestic credit growth (since interest rates contain both policy- and market-determined elements). In response to higher EMP, monetary authorities boosted domestic credit growth both in Mexico (confirming previous research) and in the Asian countries.

Keywords: WP; exchange market pressure; EMP shock; EMP fell; Domestic Credit; Exchange Rate; Reserves; Vector Autoregression; credit growth; interest rate differential; EMP measure; exchange depreciation; Monetary base; Exchange rates; Credit; Public expenditure review; Asia and Pacific (search for similar items in EconPapers)
Pages: 42
Date: 1999-08-01
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Citations: View citations in EconPapers (24)

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