Tracing Exchange Rate Volatility in Cambodia, Laos, Myanmar and Vietnam (CLMV)


Abstract


The general aim of this paper is to examine the eectiveness of the ExchangeMarket Pressure (EMP) index in suciently tracing the presence ofeconomic crises. The index was unveiled by Girton and Roper (1977) toassist policy makers in responding conclusively when severe compressionsin currencies emerge. This study provides a better acumen for how smallopen economies maintain and stabilize their exchange rates and keep othermacroeconomic variables under control through policy responses by means ofan investigation of the CLMV countries (i.e., Cambodia, Lao Peoples DemocraticRepublic (LPDR), Myanmar and Vietnam). By computing the EMPindex using the methods in Eichengreen et al. (1996), Sachs et al. (1996),and Kaminsky et al. (1998), we monitor and predict the future pace of theCLMV foreign exchange markets. Our ndings reveal several EMP signalsand its potential impact over the sample period. The EMP index plots alsoallow us to witness CLMVs quick recovery from these crises through policyresponses. These ndings indicate the eectiveness of the EMP index as anearly warning system in detecting the market pressure on the CambodianRiel, Laos Kip, Myanmar Kiat and Vietnam Dong especially during crises,through the dierent exchange rate regimes.

DOI Code: 10.1285/i20705948v11n1p168

Keywords: Exchange Market Pressure, CLMV

References


Aizenman, J. and Hutchison, M.H. (2012), Exchange market pressure and absorption by international reserves: Emerging markets and fear of reserve loss during the 2008–2009 crisis, Journal of International Money and Finance, 31: 1076–1091.

Akyüz, Y. (2013), Waving or Drowning: Developing Countries After the Financial Crisis. Research Papers 48, Geneva, South Centre.

Akyüz, Y. (2014), Crisis Mismanagement in the United States and Europe: Impact on Developing Countries and Longer-Term Consequences Research Papers 50, Geneva, South Centre.

Arestis, P. and Sawyer, M. (2016),Emerging Economies During and After the Great Recession, Palgrave Macmillan UK.

Bahmani-Osokooee, M. and Shiva, R. (1998), A method of detecting whether a central bank engages in the black market for foreign exchange: Evidence from Iran,Economics Letter, 60: 97-103.

Bahmani-Oskooee, M., and Bernstein, D. J. (1999), Exchange market pressure during the current managed float, Applied Economics Letters, 6: 585-588.

Bertoli, S., Gallo, G. and Ricchiuti, G. (2010), Exchange Market Pressure: Some Caveats in Empirical Applications, Applied Economics, 42:2435 - 2448.

Bloomberg (2011), Vietnam Devalues Dong by 7%, Risking Faster Inflation, retrived from http://www.bloomberg.com/news/articles/2011-02-11/vietnam-devalues-dong-by-a-record-7-seeking-to-curb-deficit

Claessens, S.,Kose, M.A.,Laeven, L. and Valencia, F. (2014), Financial Crises: Causes, Consequences, and Policy Responses, International Monetary Fund.

Connolly, M. and Silveira, J.D.D. (1979), Exchange market pressure in postwar Brazil: An application of the Girton-Roper monetary model, American Economic Review, 69: 448-454

Devadason, E.S. (2013), Whither Sub-Regional Cooperation? The CLMV Perspective, Institutions and Economies, 5: 1-36.

Eichengreen, B., Rose, A. and Wyplosz, C. (1996), Speculative attacks on pegged exchange rates: An empiricalexploration with special reference to the European Monetary System,in Canzoneri,M.B., Eithier, W.J.andGrilli, V. (ed.), (1996)The new transatlantic economy. Cambridge: Cambridge University Press, 191 - 222.

Feldkircher, M., Horvath, R. and Rusnak, M. (2013), Exchange market pressures during the financial crisis: A Bayesian model averaging evidence, Bank of Finland (BOFIT) Discussion Papers No. 11.

Göksu, G., Kadıoğlu, E. and Küçükkocaoğlu, G. (2015), Predicting Crises in Turkey Using an Exchange Market Pressure Model and Four-Way Decomposition Analysis of Gross Capital Flows, International Business Research, 8: 26 – 38.

Girton, L. and Roper, D. (1977), A Monetary Model of Exchange Market Pressure Applied to the Postwar Canadian Experience, American Economic Review, 67: 537-548.

Gordon, J., Stone, M., Hong, L., and Barinshtein, G. (1999), Myanmar: Recent Economic Development. IMF Staff Country Report, No.99/134.

Joiner, A. (2006),Examining the Vietnamese Dong,Economic@ Australia and New Zealand Banking Group Limited (ANZ).

Kaminsky, G., Lizondo, S.,& Reinhart, C., (1998), Leading Indicators of Currency Crisis, IMF Staff Papers, 45: 1-48.

Kato, T. (1999), The Asian Financial Crisis and the Southeast Asian Transitional Economies: Impact, Policy Responses and Lessons, SEATES (ed), Impact of the Asian Financial Crisis on the Southeast Asian Transitional Economies, Conference papers.

Krugman, P. (2000),Currency Crises, University of Chicago Press

Le, T. T. V. (2009), The Global Crisis and Vietnam’s Policy Responses.East Asian Policy, 1: 63-74.

Li, J., Rajan, R. S., & Willett, T. (2006) Measuring Currency Crises Using Exchange Market Pressure Indices: The Imprecision of Precision Weights. Retrieved from http://www.freewebs.com/rrajan01/EMP.pdf

Mai, T.T. (2012),The Impacts of European Debt Crisis on the Prospects of Some Economic Areas in Vietnam. Taiwan ASEAN Studies Center, pp. 35-46.

McFarlane, L. (2010), Exchange market pressure, currency crises and monetary policy: Evidence from Jamaica, Working Paper Bank of Jamaica.

Okonko-Iweala, N. Kwakwa, V., Beckwith, A. and Ahmed, Z. (1999), Impact of Asia’s Financial Crisis on Cambodia and the Lao PDR.IMF Finance and Development, 36: 48 – 51.

Pham, N. Q. (2009), Impact of the Global Financial and Economic Crisis on Viet Nam: A Rapid Assessment,ILO Regional Office for Asia and Pacific, Bangkok and Policy Integration and Statistics Department Geneva.

Pontines, V. and Siregar, R. (2008), Fundamental pitfalls of exchange Market pressure-based approaches to identification of currency crises, International Review of Economics and Finance, 17: 345–365.

Roubini, N. (2016), Is the world economy having a 2008 moment?,retrieved from https://www.theguardian.com/business/2016/mar/02/istheworldeconomyhavinga2008momentstockmarketsfinancialcrisis

Sachs, J., Tornell, A. and Velasco, A. (1996),Financial Crises in Emerging Markets: The Lessons from 1995. Brookings Papers on Economic Activity, 27: 147-216.

Siregar, R., Pontines, V. and Hussain, N. M. (2010), The US Sub-prime Crises and Extreme Exchange Market Pressures in Asia. The South East Asian Central Banks (SEACEN), Staff Paper No. 75.

Sok, H., Chea, H., and Sik B. (2001), Cambodia Annual Economic Review – 2001.Cambodia Development Resource Institute (CDRI).

Stavarek, D. (2008), Comparative analysis of the exchange market pressure in Central European countries with the Eurozone membership perspective,South East European Journal of Economics and Business, 3: 7 – 18.

Tanner, E. (2001), Exchange market pressure and monetary policy: Asia and Latin America in the 1990s, IMF Staff Papers, 47: 311 – 333.

Tanner, E. (2002),Exchange Market Pressure, Currency Crises, and Monetary Policy: Additional Evidence From Emerging Markets, IMF Working Paper No 14.

UNCTAD (1999),World Investment Report, Geneva: UNCTAD

Weymark, D.N. (1995), Estimating exchange market pressure and the degree of exchange market intervention for Canada,Journal of International Economics, 39: 273-295.

Zamaroczy, M.D. and Sa, S.(2002),Macroeconomic Adjustment in Highly Dollarized Economy: The Case of Cambodia, IMF Working paper No 92.


Full Text: pdf
کاغذ a4
Bookmark and Share


Creative Commons License
This work is licensed under a Creative Commons Attribuzione - Non commerciale - Non opere derivate 3.0 Italia License.