Fundamental Pitfalls of Exchange Market Pressure-Based Approaches to Identification of Currency Crises
AbstractThis study seeks to demonstrate that the identification of crisis episodes based on commonly applied exchange market pressure (EMP) indices, namely, Eichengreen, Rose and Wyplosz (1995), Sachs, Tornell and Velasco (1996), and Kaminsky, Lizondo and Reinhart (1998) are highly sensitive to the choice of: a) the weighting scheme for each component of the EMP index; and b) the statistical parametric assumption used in the constructions of crisis thresholds. To highlight further some of the potential consequences of these two pitfalls in identifying crisis episodes, this paper employs a number of possible alternative approaches to measure the exchange market pressure.
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Bibliographic InfoPaper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2006-02.
Length: 43 pages
Date of creation: Jul 2006
Date of revision:
Currency Crisis; Exchange Market Pressure; Extreme Value Theory; East Asia; Latin America.;
Other versions of this item:
- Pontines, Victor & Siregar, Reza, 2008. "Fundamental pitfalls of exchange market pressure-based approaches to identification of currency crises," International Review of Economics & Finance, Elsevier, vol. 17(3), pages 345-365.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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