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

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  • Scott W Hegerty

    () (Northeastern Illinois University)

Abstract

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.

Suggested Citation

  • Scott W Hegerty, 2013. "Exchange Market Pressure, Output Drops, and Domestic Credit: Do Emerging Markets Behave Differently?," Economics Bulletin, AccessEcon, vol. 33(4), pages 2583-2595.
  • Handle: RePEc:ebl:ecbull:eb-13-00649
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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I4-P243.pdf
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    References listed on IDEAS

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    5. 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.
    6. Simone Bertoli & Giampiero Gallo & Giorgio Ricchiuti, 2010. "Exchange market pressure: some caveats in empirical applications," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2435-2448.
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    8. Pentecost, Eric J. & Van Hooydonk, Charlotte & Van Poeck, Andre, 2001. "Measuring and estimating exchange market pressure in the EU," Journal of International Money and Finance, Elsevier, vol. 20(3), pages 401-418, June.
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    Cited by:

    1. Scott W. Hegerty, 2015. "Commodity-Price Volatility, Exchange Market Pressure, and Macroeconomic Linkages: Evidence from Latin America," Bulletin of Applied Economics, Risk Market Journals, vol. 2(2), pages 11-21.

    More about this item

    Keywords

    Exchange Market Pressure; Credit Growth; Output; Time Series; Vector Autoregression;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance

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