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Exchange Market Pressure, Output Drops, and Domestic Credit: Do Emerging Markets Behave Differently?

  • Scott W Hegerty

    ()

    (Northeastern Illinois University)

Currency crises, credit growth, and output growth have been extensively examined in the literature, but so far, less has been done to explicitly examine the linkages among these variables. Previous studies have also frequently omitted non-crisis periods in their analyses. This study creates continuous monthly indices of Exchange Market Pressure (EMP) for eight emerging markets and three developed economies, from 2001 to 2012. We then use Vector Autoregressive methods to examine the impact of credit growth and output growth on EMP before reversing causation to isolate EMP's effects on the other two variables. We find that the interactions among these variables are far more prevalent for the emerging markets. In particular, output growth increases EMP in Brazil and South Africa, while credit growth increases EMP in Hungary and reduces it in Mexico. Higher EMP reduces credit growth in Brazil, Hungary, and Turkey, and lowers growth in Russia.

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File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I4-P243.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 33 (2013)
Issue (Month): 4 ()
Pages: 2583-2595

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Handle: RePEc:ebl:ecbull:eb-13-00649
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  1. Simone Bertoli & Giampiero Gallo & Giorgio Ricchiuti, 2006. "Exchange Market Pressure: Some Caveats In Empirical Applications," Econometrics Working Papers Archive wp2006_17, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
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  7. 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.
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  11. Hegerty, Scott W., 2009. "Capital inflows, exchange market pressure, and credit growth in four transition economies with fixed exchange rates," Economic Systems, Elsevier, vol. 33(2), pages 155-167, June.
  12. 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.
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  14. Scott W Hegerty, 2010. "Exchange-market pressure and currency crises in Latin America: Empirical tests of their macroeconomic determinants," Economics Bulletin, AccessEcon, vol. 30(3), pages 2210-2219.
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