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A monetary analysis of foreign exchange market disequilibrium in Fiji

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  • Shabbir Ahmad
  • Abul Shamsuddin
  • Malcolm Treadgold
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    Abstract

    This paper evaluates a monetary model of foreign exchange market pressure in Fiji using the autoregressive distributed lag bounds testing methodology. The results suggest that if the monetary authorities in Fiji fix the exchange rate, they lose the ability to implement an independent monetary policy through control of central bank credit. Stronger monetary control is regained to the extent that pressure in the foreign exchange market is relieved through exchange rate movements rather than reserve movements.

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    Bibliographic Info

    Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Economic Policy in Emerging Economies.

    Volume (Year): 5 (2012)
    Issue (Month): 1 ()
    Pages: 66-81

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    Handle: RePEc:ids:ijepee:v:5:y:2012:i:1:p:66-81

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    Web page: http://www.inderscience.com/browse/index.php?journalID=219

    Related research

    Keywords: EMP; exchange market pressure; Fiji; monetary policy; ARDL; autoregressive distributed lag; error correction; bounds testing; exchange market disequilibrium; foreign exchange markets; exchange rates; central bank credit.;

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    1. Weymark, Diana N, 1997. "Measuring Exchange Market Pressure and Intervention in Interdependent Economies: A Two-Country Model," Review of International Economics, Wiley Blackwell, vol. 5(1), pages 72-82, February.
    2. Weymark, Diana N., 1995. "Estimating exchange market pressure and the degree of exchange market intervention for Canada," Journal of International Economics, Elsevier, vol. 39(3-4), pages 273-295, November.
    3. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
    4. Bahmani-Oskooee, Mohsen & Shiva, Reza, 1998. "A method of detecting whether a central bank engages in the black market for foreign exchange: Evidence from Iran," Economics Letters, Elsevier, vol. 60(1), pages 97-103, July.
    5. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    6. Kim, Inchul, 1985. "Exchange Market Pressure in Korea: An Application of the Girton-Roper Monetary Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 258-63, May.
    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. PENTECOST, Eric J. & VAN HOOYDONK, Charlotte & VAN POECK, André, 1997. "Measuring and estimating exchange market pressure in the EU," SESO Working Papers 1997009, University of Antwerp, Faculty of Applied Economics.
    9. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    10. Girton, Lance & Roper, Don, 1977. "A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience," American Economic Review, American Economic Association, vol. 67(4), pages 537-48, September.
    11. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    12. Weymark, Diana N, 1997. "Measuring the degree of exchange market intervention in a small open economy," Journal of International Money and Finance, Elsevier, vol. 16(1), pages 55-79, February.
    13. Connolly, Michael & Dantas da Silveira, Jose, 1979. "Exchange Market Pressure in Postwar Brazil: An Application of the Girton-Roper Monetary Model," American Economic Review, American Economic Association, vol. 69(3), pages 448-54, June.
    14. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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