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Exchange Market Pressure Index in Pakistan

Author

Listed:
  • Imran Naveed Khan

    (State Bank of Pakistan)

Abstract

This study employs Siregar and Pontines (2007) measure of Exchange Market Pressure Index (EMPI), a weighted average of exchange rate changes, reserve changes, and interest rate changes on monthly basis for period from Jul-1995 to Dec-2008 in Pakistan. One of the well- known uses of the index i.e., determining a threshold level for signal of pressure is also demonstrated. We identify twenty four signals of exchange market pressure during study period, ten of which were in a short period of three years, (FY96 to FY98). In order to address these pressures, government of Pakistan signed six programs with IMF during the period under review. The study also examines the relationship between EMPI, inflation, current account balance, and domestic credit. The results show that inflation, domestic credit and current account balance have significant effects on the exchange market pressure index. Within the domestic credit, the government sector credit significantly affects the EMPI.

Suggested Citation

  • Imran Naveed Khan, 2010. "Exchange Market Pressure Index in Pakistan," SBP Working Paper Series 35, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:35
    as

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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp35.pdf
    File Function: First version, 2010
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    References listed on IDEAS

    as
    1. M. Idrees Khawaja, 2007. "Exchange Market Pressure and Monetary Policy: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(2), pages 83-114, Jul-Dec.
    2. Barry Eichengreen & Andrew K. Rose & Charles Wyplosz, 1996. "Contagious Currency Crises," NBER Working Papers 5681, National Bureau of Economic Research, Inc.
    3. repec:lje:journl:v:2:y:2007:i:2:p:83-114 is not listed on IDEAS
    4. 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 537-548, September.
    5. 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 448-454, June.
    6. Pontines, Victor & Siregar, Reza, 2007. "The Yen, the US dollar, and the trade weighted basket of currencies: Does the choice of anchor currencies matter in identifying incidences of speculative attacks?," Japan and the World Economy, Elsevier, vol. 19(2), pages 214-235, March.
    7. Mr. Thomson Fontaine, 2005. "Currency Crises in Developed and Emerging Market Economies: A Comparative Empirical Treatment," IMF Working Papers 2005/013, International Monetary Fund.
    8. Mr. Francis Y Kumah, 2007. "A Markov-Switching Approach to Measuring Exchange Market Pressure," IMF Working Papers 2007/242, International Monetary Fund.
    9. 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 258-263, May.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Vera Ogeh Fiador & Nicholas Biekpe, 2015. "Monetary policy and exchange market pressure-evidence from sub-Saharan Africa," Applied Economics, Taylor & Francis Journals, vol. 47(37), pages 3921-3937, August.

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    More about this item

    Keywords

    Exchange market pressure; exchange rate; threshold level;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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