Exchange Market Pressure and Monetary Policy Asia and Latin America in the 1990s

42 Pages Posted: 15 Feb 2006

See all articles by Evan Tanner

Evan Tanner

International Monetary Fund (IMF) - Research Department

Date Written: August 1999

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. Examining Brazil, Chile, Mexico, Indonesia, Korea, and Thailand, this paper finds that monetary policy affects EMP as generally expected: contractionary monetary policy helps 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.

Keywords: Exchange Market Pressure Domestic Credit Exchange Rate Reserves Vector Autoregression

JEL Classification: E4 F3 F4

Suggested Citation

Tanner, Evan C., Exchange Market Pressure and Monetary Policy Asia and Latin America in the 1990s (August 1999). IMF Working Paper No. 99/114, Available at SSRN: https://ssrn.com/abstract=880641

Evan C. Tanner (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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