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A Var Analysis of Exchange Market Pressure: A Case Study for the MENA Region

Author

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  • Ahmed Kamaly

    (Economics Department, American University in Cairo)

  • Nese Erbil

Abstract

Recent currency crises in Asia and Latin America have once again raised the question of how policymakers can successfully defend exchange rates. In a managed exchange rate regime, exchange rate pressure can be translated into nominal devaluation and/or loss in international reserves. To capture this pressure, the exchange market pressure (EMP)- the sum of exchange rate depreciation and reserve outflows (scaled by base money)- was calculated and tested by a vector autoregression(VAR) framework for those MENA region countries (Egypt, Tunisia, and Turkey) adopting managed floating exchange rate regimes. The VAR framework enables us first to test whether contractionary policy- either a rise in real interest rate differential or a decrease in net domestic credit- has the expected effect on the exchange market pressure; and, second, to reckon how monetary authority uses its available short-term monetary tools to ease an increase in EMP.

Suggested Citation

  • Ahmed Kamaly & Nese Erbil, 2000. "A Var Analysis of Exchange Market Pressure: A Case Study for the MENA Region," Working Papers 2025, Economic Research Forum, revised 09 Jul 2000.
    • Handle: RePEc:erg:wpaper:2025
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    References listed on IDEAS

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    1. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, April.
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    3. Mr. Evan C Tanner, 1999. "Exchange Market Pressure and Monetary Policy: Asia and Latin America in the 1990s," IMF Working Papers 1999/114, International Monetary Fund.
    4. Amartya Lahiri & Carlos A. Vegh, 2000. "Delaying the Inevitable: Optimal Interest Rate Policy and BOP Crises," NBER Working Papers 7734, National Bureau of Economic Research, Inc.
    5. Celasun, Oya & Denizer, Cevdet & Dong He, 1999. "Capital flows, macroeconomic management, and the financial system - Turkey, 1989-97," Policy Research Working Paper Series 2141, The World Bank.
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    Cited by:

    1. M. Idrees Khawaja, 2007. "Exchange Market Pressure and Monetary Policy: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 12(2), pages 83-114, Jul-Dec.
    2. M. Idrees Khawaja & Musleh-ud Din, 2007. "Instrument of Managing Exchange Market Pressure: Money Supply or Interest Rate," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 381-394.
    3. Siklar Ilyas & Akca Aysegul, 2020. "Exchange Market Pressure and Monetary Policy: The Turkish Case," Ekonomika (Economics), Sciendo, vol. 99(1), pages 110-130, June.
    4. Ammar Hamad Khalaf, 2018. "Foreign Exchange Market Pressure Index And Monetary Policy In Iraq," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 63(219), pages 61-82, October –.

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