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Determinants of the exchange market pressure in the euro-candidate countries

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  • Stavarek, Daniel

Abstract

In the paper we choose the correct model specification for eight new EU Member States (NMS) to estimate the exchange market pressure (EMP) over the period 1995-2009. The results suggest that growth of domestic credit and money multiplier had a significantly positive impact on EMP. Furthermore, EMP in many NMS was determined by foreign disturbances, namely euro area’s money supply, foreign capital inflow and interest rate differential. EMP in most of NMS with flexible exchange rate regime was primarily absorbed by changes in international reserves. This forms, along with fundamentally stable EMP development in recent years, a solid basis for potential fulfilment of the exchange rate stability convergence criterion.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26933.

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Date of creation: 22 Nov 2010
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Handle: RePEc:pra:mprapa:26933

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Keywords: exchange market pressure; Girton-Roper model; determinants; new EU Member States;

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  1. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1995. "Speculative attacks on pegged exchange rates: an empirical exploration with special reference to the European Monetary System," Working Papers in Applied Economic Theory 95-04, Federal Reserve Bank of San Francisco.
  2. Simone Bertoli & Giampiero Gallo & Giorgio Ricchiuti, 2010. "Exchange market pressure: some caveats in empirical applications," Applied Economics, Taylor and Francis Journals, vol. 42(19), pages 2435-2448.
  3. Davidson, Russell & MacKinnon, James G, 1981. "Several Tests for Model Specification in the Presence of Alternative Hypotheses," Econometrica, Econometric Society, vol. 49(3), pages 781-93, May.
  4. Tassos Anastasatos & Constantina Manou, 2008. "Speculative Attacks on the Drachma and the Changeover to the Euro," Economic Bulletin, Bank of Greece, Economic Research Department, issue 31, pages 49-77, November.
  5. Mohsen Bahmani-Oskooee & David Bernstein, 1999. "Exchange market pressure during the current managed float," Applied Economics Letters, Taylor and Francis Journals, vol. 6(9), pages 585-588.
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