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Exchange Market Pressure and Monetary Policy; Asia and Latin America in the 1990s

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  • Evan C Tanner

Abstract

Exchange market pressure (EMP), the sum of exchange rate depreciation and reserve outflows (scaled by base money), summarizes the flow excess supply of money in a managed exchange rate regime. Examining Brazil, Chile, Mexico, Indonesia, Korea, and Thailand, this paper finds that monetary policy affects EMP as generally expected: contractionary monetary policy helps reduce EMP. The monetary policy stance is best measured by domestic credit growth (since interest rates contain both policy- and market-determined elements). In response to higher EMP, monetary authorities boosted domestic credit growth both in Mexico (confirming previous research) and in the Asian countries.

Suggested Citation

  • Evan C Tanner, 1999. "Exchange Market Pressure and Monetary Policy; Asia and Latin America in the 1990s," IMF Working Papers 99/114, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/114
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    Keywords

    Exchange markets; Reserves; Monetary policy; Exchange Market Pressure; Domestic Credit; Exchange Rate; Vector Autoregression; monetary base; money supply; inflation; monetary fund;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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