European Parliament Library

A Markov-Switching Approach to Measuring Exchange Market Pressure, Francis Kumah

This paper characterizes exchange market pressure as a nonlinear Markov-switching phenomenon, and examines its dynamics in response to money growth and inflation over three regimes. The empirical results identify episodes of exchange market pressure in the Kyrgyz Republic and confirm the statistical superiority of the nonlinear regime-switching model over a linear VAR version in understanding exchange market pressure. The nonlinear empirical approach adequately characterizes the data generation process and yields results that are consistent with theoretical predictions, particularly the dampening effect of monetary contraction on depreciation pressure. During periods of appreciation pressure, however, the reverse policy option-monetary expansion-may not be efficient, particularly where PPP rather than UIP drives exchange rates. In addition, monetary expansion in such cases defeats the primary objective of monetary policy-price stability-and may exacerbate the instability
Table Of Contents
Contents; I. INTRODUCTION; II. DEFINING EXCHANGE MARKET PRESSURE; A. A WORKING DEFINITION; B. THE THEORY; Tables; 1. Characterizing Exchange Market Pressure; III. CHARACTERIZING EXCHANGE MARKET PRESSURE; A. STYLIZED FACTS FROM THE DATA; Figures; 1. Kyrgyz Republic: Consumer Prices, Net Foreign Reserves and Exchange Rates, 1996-2006; B. CONGRUENT REPRESENTATION OF THE DATA; C. EMPIRICAL RESULTS; 2. Kyrgyz Republic: Dating Exchange Market Pressure, 1995-2006; 2. Maximum Likelihood Estimation Results, 1996-2006; 3. Regime Properties of Exchange Market Pressure, 1996-2006; 3. Regime Probabilities
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (28 p.)
Specific Material Designation
Form Of Item

Library Locations

  • EP Library Brussels

    60 rue Wiertz, Brussels, B-1047, BE
  • EP Library Strasbourg

    7 Place Adrien Zeller, Allée du Printemps, Strasbourg, F-67070, FR
  • EP Library Luxembourg

    Rue du Fort Thüngen, Luxembourg, L-1313, LU