Exchange market pressure and monetary policy: Asia and Latin America in the 1990s

Exchange market pressure (EMP), the sum of exchange rate depreciation and r eserve outflows (scaled by, base money), summarizes the flow excess supply of money in a managed exchange rate regime. This paper examines Brazil, Chi le, Mexico, Indonesia, Korea, and Thailand, and finds that monetary policy affects EMP as generally expected contractionary monetary policy, helps to reduce EMP. The monetary policy, stance is best measured by, domestic credi t growth (since interest rates contain both policy- and market-determined e lements). In response to higher EMP, monetary authorities boosted domestic credit growth both in Mexico (confirming previous research) and in the Asia n countries.