A general approach to measuring exchange market pressure

Abstract

This article introduces a general methodology for constructing summary statistics that can be used to measure the magnitude, frequency, and persistence of currency crises. A general, model-independent definition of exchange market pressure is proposed and used to derive model-consistent exchange market pressure indices that can be calculated from observed data. The method of deriving model-consistent indices of exchange market pressure is illustrated using a model of a small open economy with rational expectations.