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IMF Staff Papers Logo    September 2000
Volume 47, Number 3
Exchange Market Pressure and Monetary Policy: Asia and Latin America in the 1990s
By Evan Tanner

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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. 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]

2001 International Monetary Fund