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Time-Varying Versus Fixed Weights in Exchange-Market Pressure Indices: Evidence From Tests Using Latin American Data

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  • Scott W. Hegerty

Abstract

Years after the 2008 Global Financial Crisis, currencies worldwide are still susceptible to spillovers not only from foreign currency markets, but also from shocks to stock or commodity prices. Understanding these spillovers is essential for policymakers to respond properly, yet defining ?crisis? periods can often be difficult. This paper proposes two alternative weighting schemes that can be used in the creation of an index of ?exchange market pressure? (EMP), constructing them, as well as a more traditional index, for five Latin American nations and three other emerging markets. Vector Autoregressive (VAR) analysis shows that the two new indices are less likely to find evidence of currency spillovers. We therefore conclude that these differences among measures make the new indices less likely to replace the baseline measure in econometric studies.

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  • Scott W. Hegerty, 2015. "Time-Varying Versus Fixed Weights in Exchange-Market Pressure Indices: Evidence From Tests Using Latin American Data," Bulletin of Applied Economics, Risk Market Journals, vol. 2(1), pages 21-36.
    • Handle: RePEc:rmk:rmkbae:v:2:y:2015:i:1:p:21-36
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    Cited by:

    1. Devendra Kumar Jain & Rup Singh & Arvind Patel & Ronal Chand, 2023. "Foreign exchange market asymmetries in Pacific small island developing states: Evidence from Fiji," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4353-4364, October.

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    More about this item

    Keywords

    Exchange Market Pressure; Weights; Time Series; Latin America;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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