Exchange Market Pressure and Monetary Policy: Evidence from Pakistan
The study employs the Girton and Roper (1977) measure of exchange market pressure (defined as the sum of exchange rate depreciation and foreign reserves outflow), to examinethe interaction between exchange market pressure and monetary variables, viz. domestic credit (Reserve Money) and the interest rate. Evidence from impulse response functions suggests that domestic credit has remained the dominant tool of monetary policy for managing exchange market pressure. The increase in domestic credit upon increases in exchange market pressure (during 1991-98) was imprudent. The results suggest that fiscal needs/growth objectives might have dominated external account considerations during this period. Post 9/11 there is evidence of sterilized intervention in the forex market. The interest rate has also weakly served as the tool of monetary policy during the hay days of foreign currency deposits (1991-98). The finding implies that, for the interest rate to work as tool of monetary policy vis-a-vis exchange market pressure, a reasonable degree of capital mobility is called for.
Volume (Year): 12 (2007)
Issue (Month): 2 (Jul-Dec)
|Contact details of provider:|| Postal: Intersection Main Boulevard Phase VI DHA and Burki Road, Lahore|
Phone: (92-42) 6560939
Web page: http://www.lahoreschoolofeconomics.edu.pk/EconomicsJournal/LJEIntro.aspx
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Evan Tanner, 2002. "Exchange Market Pressure, Currency Crises, and Monetary Policy; Additional Evidence From Emerging Markets," IMF Working Papers 02/14, International Monetary Fund.
- Evan Tanner, 1999.
"Exchange Market Pressure and Monetary Policy; Asia and Latin America in the 1990s,"
IMF Working Papers
99/114, International Monetary Fund.
- Evan Tanner, 2001. "Exchange Market Pressure and Monetary Policy: Asia and Latin America in the 1990s," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 2.
- J. Joseph Beaulieu & Jeffrey A. Miron, 1992.
"Seasonal Unit Roots in Aggregate U.S. Data,"
NBER Technical Working Papers
0126, National Bureau of Economic Research, Inc.
- Parkin, Michael, 1976. " Comment on M. Mussa, "The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating."," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 249-54.
- Flood, Robert P & Jeanne, Olivier, 2000.
"An Interest Rate Defence of a Fixed Exchange Rate?,"
CEPR Discussion Papers
2507, C.E.P.R. Discussion Papers.
- Flood, Robert P. & Jeanne, Olivier, 2005. "An interest rate defense of a fixed exchange rate?," Journal of International Economics, Elsevier, vol. 66(2), pages 471-484, July.
- Olivier Jeanne & Robert P. Flood, 2000. "An Interest Rate Defense of a Fixed Exchange Rate?," IMF Working Papers 00/159, International Monetary Fund.
- Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
- 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 537-48, September.
- Mussa, Michael, 1976. " The Exchange Rate, the Balance of Payments and Monetary and Fiscal Policy under a Regime of Controlled Floating," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 229-48.
- 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 448-54, June.
- Gochoco-Bautista, Maria Socorro & Bautista, Carlos C., 2005. "Monetary policy and exchange market pressure: The case of the Philippines," Journal of Macroeconomics, Elsevier, vol. 27(1), pages 153-168, March.
When requesting a correction, please mention this item's handle: RePEc:lje:journl:v:12:y:2007:i:2:p:83-114. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shahid Salahuddin)
If references are entirely missing, you can add them using this form.