Exchange Market Pressure in Australia
This paper measures the exchange market pressure (EMP) on the Australian dollar over the post-float period using the model-dependent approach proposed by Weymark (1995, 1998) and the model-independent approach developed by Eichengreen, Rose and Wyplosz (1996). Although there are some concerns over the estimation of the model-dependent index, the resulting EMP indices both appear to provide relatively plausible descriptions of the pressure on the Australian dollar. The role of foreign exchange intervention is examined through the construction of degree of intervention (DI) indices. The results reveal that intervention by the Reserve Bank of Australia contributed to the large depreciation of the Australian dollar between 1997 and 2001.
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