Alternative Exchange Market Pressure Index Model for Currency Crisis

Mouridi M. Hamidou, Dr. Joseph K. Mung'atu, Prof. George O. Orwa


Currency crisis is classified as one of the top ranked extreme risks of the third millennium. It becomes a serious financial and economic problem worldwide and researchers have focused their attention on understanding how those crises are studied, modeled and analyzed. These currency crises exist in the form of speculative attacks in the foreign exchange market. These speculative pressures are measured by crisis indexes named exchange market pressure indexes (EMPI), which need to reflect both successful and unsuccessful speculative pressures on local currency. This paper aims to develop an alternative exchange market pressure index model for currency crisis. The methodology that will be adopted to construct the alternative EMP index model is the “EMPI model independent based approach”. A simulation analysis is also performed to validate and verify the theoretical properties of the proposed EMPI model. We end up by studying the different properties related to the EMPI model. This new alternative EMPI model is expected to measures incidence of currency crisis periods in a regional or/and global economies  (countries), to measure also incidence for currency crisis for successful and unsuccessful attacks  and identify currency crisis happening either in a fixed, floating and/or intermediate exchange regimes. Our investigation suggests that the exchange market pressure index similar to other financial time series tends to be heavy tailed. Overall, the results appear to confirm that the EMPI is stationary and again correlated. A comparison study on Dollar and Euro Kenya's EMPIs is conducted and results reveal a very weak difference between them.

This study covers only a small area of this growing field of research. It contributes by constructing an alternative EMPI model that may have a position in the toolbox of economists looking for more accurate model in predicting currency crises.


Currency crisis; Periods of crisis; Exchange market pressure; Speculative attack; Model-independent.

Full Text:



Abiad, M. A. (2003, February). Early warning systems: A survey and a regime-switching approach. International Monetary Fund (IMF), Working paper Number 3-32. Available at: SSRN: or

Aizenman, J., Lee, J., & Sushko, V. (2012, September). From the great moderation to the global crisis: exchange market pressure in the 2000s. Open Economies Review, 23(4): pp.597- 621. Available at:

Angkinand, A., Li, J., & Willett, T. (2006). Measures of currency crises: A survey. International interaction.

Aziz, J., Caramazza, F., & Salgado, R. (2000, March). Currency crises: in search of common elements. IMF Working paper, No 00/67, pp. 1-56. Available at: SSRN: [Feb. 13, 2006]

Balakrishnan, R., Danninger, S., Elekdag, S., and Tytell, I. (2011). The transmission of financial stress from advanced to emerging economies. Emerging Markets Finance and Trade [online], 47(sup2):40- 68. [Dec. 7, 2014]

Bubula, M. A. and O tker, M. I. (2003). Are pegged and intermediate regimes more crises prone? Amazon: International Monetary Fund, pp. 3-223.

Eichengreen, B., Rose, A. K., and Wyplosz, C. (1995, October). Exchange market mayhem: the antecedents and aftermath of speculative attacks. Economic Policy, 10(21), pp.249–312. Available at: [July.21, 2014]

Dominguez, K. M., Hashimoto, Y., and Ito, T. (2012, November), International reserves and the global financial crisis. Journal of International Economics, 88(2), pp. 388–406. Available at:

Eichengreen, B., Rose, A. K., & Wyplosz, C. (1996, July), Contagious currency crises, National bureau of economic research. Technical report, No 5681

Eichengreen, B. & Rose, A. K. (1998), staying afloat when the wind shifts: External factors and emerging-market banking crises. National Bureau of Economic Research . Technical report No 6370,

Fischer, S. (1999, autumn), On the need for an international lender of last resort. The Journal of Economic Perspectives, 13(4):85- 104. Available at:

Frankel, J. A. & Rose, A. K. (1996b November). Currency crashes in emerging markets: An empirical treatment. Journal of international Economics, 41(3):351- 366.

Frankel, J. and Saravelos, G. (2012, July). Can leading indicators assess country vulnerability? Evidence from the 200809 global financial crisis. Journal of International Economics, 87(2):216 - 231. Available at:

Girton, L. & Roper, D. (1977, September). A monetary model of exchange market pressure applied to the postwar Canadian experience. The American Economic Review, 67(4):537-548. Available at:

Glick, R. & Hutchison, M. (2011, January). The illusive quest: Do international capital controls contribute to currency stability? International Review of Economics & Finance, 20(1):59-70. Available at:

Glick, R. & Rose, A. K. (1999, August). Contagion and trade: Why are currency crises regional? Journal of international Money and Finance, 18(4):603-617. Available at: 5606(99)00023-6

Haile, F. D. & Pozo, S. (2006, September). Exchange rate regimes and currency crises: an evaluation using extreme value theory. Review of International Economics, 14(4):554-570.

Hall, S. G., Kenjegaliev, A., Swamy, P., and Tavlas, G. S. (2013, September). Measuring currency pressures: The cases of the japanese yen, the chinese yuan, and the uk pound. Journal of the Japanese and International Economies, 29. 1- 20. Available at:

Hawkins, J. and Klau, M. (2000, October), Measuring potential vulnerabilities in emerging market economies. BIS Working paper No 91. Available at: SSRN:

Heinz, F. F. & Rusinova, D. (2015, July 9). An alternative view of exchange market pressure episodes in emerging Europe: an analysis using extreme value theory (EVT). ECB Working paper No 1818. Available at SSRN:

Ho, T.-k. (2008), Extremal analysis of currency crises in Taiwan. Applied Economics[Online], 40(9): 1175 - 1186. Available at: [Apr. 11, 2011]

Jacobs, J. P. (2007, October). Dating currency crises with ad hoc and extreme value based thresholds: East Asia 1970-2002 [dating currency crises]. International Journal of Finance & Economics, 12(4), pp. 371-388.

Kaminsky, G., Lizondo, S., and Reinhart, C. M. (1998, March), Leading indicators of currency crises. Staff Papers, 45(1), pp. 1-48. Available at: [March. 1, 1998]

Kaminsky, G. L. (1999) Currency and banking crises: the early warnings of distress. Amazon: International Monetary Fund (IMF), pp. 99-178.

Kaminsky, G. L. and Reinhart, C. M. (1999, June). The twin crises: the causes of banking and balance-of-payments problems. American economic review, 89(3), pp. 473-500.

Klaassen, F. and Jager, H. (2011, February), Definition-consistent measurement of exchange market pressure. Journal of international Money and Finance, 30(1), pp.74-95. Available at:

Klaassen, F. J. (2011, January 31), Identifying the weights in exchange market pressure. Timbergen Institute discussion paper 11-030/2.Available at SSRN:

Krueger, A. O. (1997, March), Nominal anchor exchange rate policies as a domestic distortion. National Bureau of Economic Research, Technical report No 5968

Krugman, P. (1979, August), A model of balance-of-payments crises. Journal of money, credit and banking, 11(3):311-325.

Li, J., Rajan, R. S., & Willett, T. (2006, October), Measuring currency crises using exchange market pressure indices: the imprecision of precision weights. Unpublished paper

Markovi’c, M. et al. (2015, December), Domestic and external factors of currency crises. Facta Universitatis-Economics and Organization, 12(2), pp. 121-128.

Mazziotta, M. & Pareto, A. (2013). Methods for constructing composite indices: One for all or all for one. Rivista Italiana di Economia Demografia e Statistica, 67(2), pp. 67-80.

McKinnon, R. I. (2001). Limiting moral hazard and reducing risk in international capital flows. In Trade, Development and Political Economy, pp. 57-77. Springer.

Megersa, K. and Cassimon, D. (2015, September). Assessing indicators of currency crisis in Ethiopia: Signals approach. African Development Review, 27(3), pp. 315–330.

Oruc, E. Estimating Exchange Market Pressure: New Approach. Ph.D.Thesis, University of Kansas. USA 2015. Available at:

Pozo, S. & Amuedo-Dorantes, C. (2003, August), Statistical distributions and the identification of currency crises. Journal of International Money and Finance, 22(4):591- 609. Available at:

Reisen, H., Soto, M., & Weithoner, T. (2008). Financing global and regional public goods through oda: Analysis and evidence from the oecd creditor reporting system. In Development Finance in the Global Economy, pp. 124-150. Springer.

Sachs, J., Tornell, A., & Velasco, A. (1996, May). Financial crises in emerging markets: the lessons from 1995. National bureau of economic research Technical report No 5576.

Spolander, M. (1999, December), Measuring exchange market pressure and central bank intervention. Bank of Finland Studies working paper No E: 17. Available at SSRN:

Stavarek, Daniel (2006): Estimation of the Exchange Market Pressure in the EU4 Countries: A Model-Dependent Approach. Investment Management and Financial Innovations, Vol. 4, No. 3 (2007): pp. 80-94.

Stavarek, D. et al. (2010, February). Exchange market pressure and de facto exchange rate regime in the euro-candidates. Romanian Journal of Economic Forecasting, 13(2), pp. 119-139.

Stiglitz, J. E. (2002, January 1rst). Capital market liberalization and exchange rate regimes: risk without reward. The Annals of the American Academy of Political and Social Science, 579(1), pp. 219-248.

Turnovsky, S. J. (1985, March), Domestic and foreign disturbances in an optimizing model of exchange-rate determination. Journal of International Money and Finance, 4(1), pp. 151-171. Available at: (85)90011-7

Weymark, D. N. (1995). Estimating exchange market pressure and the degree of exchange market intervention for Canada. Journal of International Economics, 39(3), pp. 273-295. Available at: (95)01389-4

Pentecost, E. J., Van Hooydonk, C., and Van Poeck, A. (2001, June). Measuring and estimating exchange market pressure in the EU. Journal of International Money and Finance, 20(3):401–418. Available at: (00)00055-3


  • There are currently no refbacks.





About IJSBAR | Privacy PolicyTerms & Conditions | Contact Us | DisclaimerFAQs 

IJSBAR is published by (GSSRR).