Exchange Market Pressure: Evidences from ASEAN Inflation Targeting Countries (original) (raw)
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Exchange Market Pressure and Monetary Policies in ASEAN5
2017
The aim of this research is to analyze the relationship between Exchange Market Pressure (EMP) and monetary policies in ASEAN5 (Indonesia, Malaysia, the Philippines, Thailand, and Singapore). This research applies Vector Error Correction Model (VECM) and monthly data for the periods January 2006 – December 2016 for individual country estimation. The results show that the ASEAN5 monetary authorities have responded the increase of EMP by contracting domestic credit in the non-crisis periods, and by providing more liquidity to the bank system in the crisis periods. In addition, in the case of ASEAN5 the increase in interest rate differential has reduced the EMP.
Monetary Policy and Exchange Market Pressure : the Case of the Philippines 1
2003
This study examines how monetary authorities respond to exchange market pressure (EMP) and tests whether traditional monetary prescriptions of contracting money to lend strength to a currency are valid in the case of the Philippine peso. Monthly data for the period 1990.1-2000.4 and a VAR methodology in Tanner [1999, 2001, 2002] are used. In general, it is found that contracting domestic credit growth and raising the interest rate differential both reduce EMP. In crisis periods, however, authorities responded differently to EMP. They chose not to sterilize and instead contracted domestic credit growth. The possibility of a perverse effect from raising domestic interest rates cannot be ruled out.
Monetary policy and exchange market pressure: The case of the Philippines
Journal of Macroeconomics, 2005
This study examines how monetary authorities respond to exchange market pressure (EMP) and tests whether traditional monetary prescriptions of contracting money to lend strength to a currency are valid in the case of the Philippine peso. Monthly data for the period 1990.1-2000.4 and a VAR methodology in Tanner [1999, 2001, 2002] are used. In general, it is found that contracting domestic credit growth and raising the interest rate differential both reduce EMP. In crisis periods, however, authorities responded differently to EMP. They chose not to sterilize and instead contracted domestic credit growth. The possibility of a perverse effect from raising domestic interest rates cannot be ruled out.
Determinants of short and long-term exchange market pressure in Indonesia
Jurnal Ekonomi & Studi Pembangunan, 2023
A decrease in a country's export prices and foreign exchange reserves is symptomatic of exchange rate market pressures, which would be described as an oversupply or disequilibrium in the money market. The method used in this study is the Vector Error Correction Model (VECM) to investigate Exchange Market Pressure (EMP) in Indonesia. This study utilizes secondary data obtained from Statistics Indonesia and Bank Indonesia (BI) website since 2008Q1-2021Q4. The findings of this study demonstrate a strong positive long-term relationship between domestic credit growth and the BI rate, a large negative long-term relationship between GDP growth and the BI rate, and no significant relationship between the current account balance and the exchange rate.
Exchange rate determination and inflation in Southeast Asian countries
Journal of Development Economics, 1998
We estimate structural open economy models consistent with rational (RE) and theories consistent (TCE) expectations which incorporate cointegration to examine exchange rate determination and inflation in three southeast Asian countries. The RE model is rejected in favor of the TCE model. Our results show that while inflation in all three countries is affected by different external factors, Malaysia and Singapore avoided high inflation despite high levels of economic growth through 'tight' monetary policy. In contrast, the Philippines had high inflation, even with a stagnant economy, due to 'loose' monetary policy and the monetization of government debt.
2010
Inflation has always been one of the most important macroeconomic issues. Due to this importance, a study concerning the factors associated with the behavior of inflation needs to be done. This paper will be devoted to analyze the relevance of inflation with the exchange rates. The research will try to compare the response or sensitivity of inflation to the changes in real exchange rates in Asia (ASEAN +3) and compare the result with those of the EU and North America. Using explorative statistical analysis and Granger-causality test, we found that there is a strong correlation between the movements of inflation with real exchange rate in most countries to be analyzed. For Asia, there is a significant one-way causal relationship, where the nominal and real exchange rates have a significant impact on the rate of inflation. On the other hand, in the Non-Asian regions, the causal relationship seems to be in the opposite direction. Furthermore, using panel data model with fixed effects, ...
Exchange market pressure and monetary policy: Asia and Latin America in the 1990s
IMF Staff Papers, 2000
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. This paper examines Brazil, Chile, Mexico, Indonesia, Korea, and Thailand, and finds that monetary policy affects EMP as generally expected: contractionary monetary policy helps to 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. [JEL E4, F3, F4] T he term "exchange market pressure" (EMP) generally refers to movements in two key external sector variables: (official) international reserve holdings and the (nominal) exchange rate. 1 Girton and Roper's (1977) seminal paper more precisely defined EMP as the sum of exchange rate depreciation and reserve
Journal of Money, Credit and Banking, 2008
Macroeconomic consequences of a large currency depreciation among the crisis-hit Asian economies had varied from one country to another. Inflation did not soar in most Asian countries, including Thailand and Korea, after the exchange rate depreciated during the crisis. Indonesia, however, suffered very high inflation following a very large nominal depreciation of the rupiah. As a result, price competitive advantage by the rupiah depreciation was lost in the real exchange rate terms. The objective of this paper is to examine the pass-through effects of exchange rate changes on the domestic prices in the East Asian economies using a VAR analysis. Main results are as follows: (1) the degree of exchange rate pass-through to import prices was quite high in the crisis-hit economies;
2018
The occurrence of the currency crisis has increased due to the growth of globalisation and the emergence of the integrated international financial market. Hence, the recent crisis justifies the requirement for the policymakers to comprehend the contagion to avoid and manage the widespread of a future crisis, particularly for Asian countries which aim towards a more comprehensive regional monetary and financial integration with the world. Thus, this study examined the various transmission mechanisms that propagated and amplified the shocks from one country to another country in Asia, motivated by the financial crisis turbulence in Asian countries and the doubts of optimal responses for the crisis. In particular, this study also investigated the transmission of global shock between economies that focus on 'trade' and 'financial' linkages and the relationship between currency crisis and monetary policy in four countries, namely Indonesia, Korea, Malaysia and the Philippines. In contrary to the literature, this study attempted to analyse the impacts of specific actions or policies on individual countries which can provide insights for each sample country with different macroeconomic fundamentals. In addition, this study also dated the currency crisis with more sophisticated statistical tests and methods, such as Extreme Value Theory (EVT). Apart from that, this study applied the Structural Vector Autoregressive (SVAR) models to analyse the effectiveness of monetary policy in decreasing currency pressure. In fact, the findings of the study provide valuable implications for the policy authorities. Thus, in this study, the main findings are: (1) more flexible currency is associated with higher volatility; (2) the higher degree of trade openness assists to amplify the impact of shocks in the economy; (3) the currency crisis is transmittable among major trade partners and/or competitors; (4) the economic fundamental is related to the incidence of currency crisis and supports the first-generation model of speculative attacks; (5) the responses of the currency pressure to monetary policies shocks are varied between Asian financial crisis and global financial crisis; and (6) the monetary policy stances are ineffective in decreasing currency pressure. Since the results revealed that the crisis is transmitted through trade linkage, policy authorities should be more cautious in pursuing external