02028cas a2200241 a 4500 AALejournalIMF009623 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451868050 1018-5941 BD-DhAAL BD-DhAAL Kumah, Francis. A Markov-Switching Approach to Measuring Exchange Market Pressure / Francis Kumah. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (26 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students 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. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2007/242 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/242/001.2007.issue-242-en.xml IMF e-Library