Market pressure on currencies in crises. Shadow exchange rate experience of Argentina and Switzerland 2011-2015

Aim/purpose – The aim of this paper is to present two cases of crises in Greece and Italy and to evaluate the shadow exchange rates of hypothetical new currencies (re)introduced after Grexit and Italexit. Design/methodology/approach – Both shadow exchange rates are estimated using speculative pressure index concept that emphasizes the importance of changes in foreign exchange reserves and interest rate differentials in the absence of an independent nomi- nal exchange rate. The research sample covers Greece in 1989-2020 and Italy in 1989- 2020. Findings – The research presented the estimation of shadow exchange rates EUR/GRD and EUR/ITL during the euro zone membership period. Leaving the euro area one can expect the following market rates: EUR/GRD 600 and EUR/ITL 1850. That would mean 75% depreciation and 5% appreciation to the current euro parities EUR/GRD 340.75, and EUR/ITL 1936.27, respectively. Research implications/limitations – After potential Grexit Greek authorities could expect significant nominal depreciation of a new currency (or should introduce it with a substantial discount). In the case of Italexit, the new currency would preserve its nomi- nal value. The limitations of the research methodology are: a long period of the analysis covers structural changes of financial markets, crisis events, political factors (e.g., QE programs). Originality/value/contribution – The originality of this approach lies in the combina- tion of two important economic concepts – the idea of shadow exchange rate and the index of speculative pressure. Combined together they help to prepare the methodology of shadow exchange rates evaluation for currencies that are currently in the common currency system (e.g., currency union). These results can help in economic and political discussions on effects of leaving the currency union. Keywords: nominal exchange rates, euro area, financial crises. JEL Classification: F21, F31, F37, F38, G15

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Determinan of Exchange Market Pressure in ASEAN Inflation Targeting Countries

Jurnal Economia ◽

10.21831/economia.v16i1.29716 ◽

2020 ◽

Vol 16 (1) ◽

pp. 18-32

Author(s):

Lisa Gusmanita ◽

Nury Effendi ◽

Rudi Kurniawan

Keyword(s):

Exchange Rate ◽

Foreign Exchange ◽

Capital Flows ◽

Foreign Exchange Market ◽

Inflation Targeting ◽

Panel Data Analysis ◽

Exchange Market ◽

Exchange Market Pressure ◽

Domestic Credit ◽

Market Pressure

Abstract: The global economic turmoil on domestic economy was seen in 1997/1998 crisis which led to Thailand, Philippines and Indonesia implementing Inflation Targeting (IT). Empirically, IT was able to reduce foreign exchange market pressure but crisis occurred again in 2008 and large foreign exchange market pressure in 2018. This study uses Exchange Market Pressure (EMP) to examines foreign exchange market pressure in ASEAN IT countries. According to Panday (2015), EMP is percentage change in exchange rate, foreign exchange reserve, interest rate or combinations. This study aims to find determinant of EMP which can be used by monetary authority controlling pressure on foreign exchange market. Panel data analysis during 2010.Q1-2018.Q4 shows that domestic credit has significant negatively effect to EMP which indicates that domestic credit growth is in line with increasing net capital flows. Current account and US inflation have significant negatively effect while real GDP does not have significant.Keywords: Exchange Market Pressure, EMP, Exchange Rate, Monetary PolicyDeterminan Exchange Market Pressure Negara Inflation Targeting di ASEANAbstrak: Gejolak perekonomian global terhadap perekonomian domestik terlihat pada krisis 1997/1998 yang menyebabkan Thailand, Filipina dan Indonesia menerapkan Inflation Targeting (IT). Secara empiris, IT mampu menurunkan tekanan pasar valas akan tetapi krisis kembali terjadi di 2008 dan tekanan pasar valas yang besar di 2018. Penelitian ini menggunakan Exchange Market Pressure (EMP) untuk melihat seberapa besar tekanan terhadap pasar valas negara IT di ASEAN. Menurut Panday (2015), EMP adalah persentase perubahan nilai tukar, perubahan cadangan devisa, perubahan suku bunga dan atau kombinasinya. Penelitian ini bertujuan ingin mengetahui faktor-faktor apa saja yang memengaruhi EMP sehingga dapat dijadikan masukan bagi otoritas moneter dalam mengendalikan tekanan terhadap pasar valas. Penelitian ini menggunakan analisis regresi data panel periode 2010.Q1-2018.Q4. Penelitian menunjukkan kredit domestik signifikan negatif memengaruhi EMP. Hal ini tidak sesuai teori yang mengindikasikan bahwa pertumbuhan kredit domestik sejalan dengan peningkatan net capital flows. Transaksi neraca berjalan dan inflasi AS berpengaruh signifikan negatif sedangkan PDB riil tidak berpengaruh signifikan terhadap EMP.Kata kunci: Exchange Market Pressure, EMP, Nilai Tukar, Kebijakan Moneter

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A NEW APPEOACH TO THE ESTIMATION OF THE SHADOW EXCHANGE RATE IN EVALUATING DEVELOPMENT PROJECTS IN LESS DEVELOPED COUNTRIES

Oxford Economic Papers ◽

10.1093/oxfordjournals.oep.a041282 ◽

1974 ◽

Vol 26 (2) ◽

pp. 192-207 ◽

Cited By ~ 2

Author(s):

RAVEENDRA BATRA ◽

STEPHEN GUISINGER

Keyword(s):

Exchange Rate ◽

Developed Countries ◽

Development Projects ◽

Less Developed Countries ◽

Shadow Exchange Rate

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Measuring exchange market pressure in South Africa: an application of the Girton-Roper monetary model

South African Journal of Economic and Management Sciences ◽

10.4102/sajems.v10i1.538 ◽

2013 ◽

Vol 10 (1) ◽

pp. 89-98 ◽

Cited By ~ 1

Author(s):

Emmanuel Ziramba

Keyword(s):

Exchange Rate ◽

Real Income ◽

Flexible Exchange Rate ◽

Exchange Market ◽

Monetary Model ◽

Exchange Market Pressure ◽

African Experience ◽

Monetary Approach ◽

The Impact ◽

Market Pressure

The monetary approach to the balance of payments is based on the assumption of a fixed exchange rate, while its approach to exchange rate determination is based on perfectly flexible exchange rate. Another monetary model called the Exchange Market Pressure model (EMP) was designed to capture the properties of the managed float. This paper applies the monetary model of the EMP to the South African experience with floating exchange rate and managed float systems over the period 1970-1993. We show that the EMP model is superior to the traditional monetary approach. We do not find evidence of the impact of domestic real income on EMP. Diagnostic tests suggest that the model is well specified and the residuals pass the typical checking.

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THE SHADOW EXCHANGE RATE IN AN ECONOMY WITH TRADE RESTRICTIONS

Oxford Economic Papers ◽

10.1093/oxfordjournals.oep.a041281 ◽

1974 ◽

Vol 26 (2) ◽

pp. 185-191 ◽

Cited By ~ 6

Author(s):

TRENT J. BERTRAND

Keyword(s):

Exchange Rate ◽

Trade Restrictions ◽

Shadow Exchange Rate

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Reserve Volatility and the Identification of Exchange Rate Regimes

Open Economies Review ◽

10.1007/s11079-021-09617-7 ◽

2021 ◽

Author(s):

Michael Bleaney ◽

Mo Tian

Keyword(s):

Exchange Rate ◽

Exchange Rate Regime ◽

Exchange Rate Regimes ◽

Limited Extent ◽

Exchange Market ◽

Exchange Rate Flexibility ◽

Monthly Data ◽

Exchange Rate Variability ◽

Market Pressure ◽

Flexibility Index

AbstractShould exchange rate regime classifications be based purely on some measure of exchange rate flexibility, or should such flexibility be judged in proportion to the degree of exchange market pressure (EMP), as reflected in the behaviour of international reserves? Some authors have claimed that the best approach to classifying exchange rate regimes is to estimate to what extent EMP is absorbed in reserve variability rather than exchange rate variability. Empirical evidence is presented on the variability of reserves and exchange rates for 193 countries from 1980 to 2019. Pegged regimes do not display any more reserve volatility than floats. In most regimes there is a small but statistically significant positive correlation between reserve accumulation and exchange rate appreciation in monthly data, but this effect is no stronger in less flexible regimes, where intervention is expected to be greater. A flexibility index is constructed, based on the ratio of exchange rate flexibility to reserve volatility, and is compared to one based solely on exchange rate flexibility by investigating its conformity with the IMF de facto classification. The flexibility index that takes reserves into account does not improve the identification of pegs, but it helps to a limited extent to distinguish free floats from managed floats.

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