Exchange Market Pressure, Currency Crises, and Monetary Policy: Additional Evidence From Emerging Markets

IMF Working Papers, January 1, 2002

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Extends previous work by examining the relationship between monetary policy and exchange market pressure (EMP) in 32 emerging market countries.
EMP is defined and used as a gauge of the severity of crises; part of the analysis specifically focuses on crisis periods.
Two variables gauge the stance of monetary policy: the growth of central bank domestic credit and the interest differential (domestic versus U.S. dollar).
Evidence suggests that monetary policy plays an important role in currency crises.
In most countries studied, shocks to monetary policy affect EMP in the direction predicted by traditional approaches: tighter money reduces EMP.

Sample: 32 emerging market countries.
Monetary policy indicators:
- Growth of central bank domestic credit.
- Interest differential (domestic versus U.S. dollar).
EMP is used as the central measure of crisis severity; part of the paper specifically analyzes crisis episodes.
Econometric approach includes vector autoregression (as listed in subject/keywords).

Monetary policy is an important determinant of currency crises as measured by EMP.
Tighter monetary policy generally reduces EMP across most countries in the sample.
The empirical evidence aligns with predictions from traditional approaches to monetary policy and exchange rate crises.

Monetary authorities in emerging market countries can influence EMP through conventional monetary policy instruments.
Managing the growth of central bank domestic credit and interest rate differentials can be policy tools to mitigate EMP during crisis periods.