A GENERAL-APPROACH TO MEASURING EXCHANGE MARKET PRESSURE

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 definitio n of exchange market pressure is proposed and used to derive model-con sistent exchange market pressure indices that can be calculated from o bserved data. The method of deriving model-consistent indices of excha nge market pressure is illustrated using a model of a small open econo my with rational expectations.