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Monday, April 06, 2020

Release of v2.0 of the Exchange Market Pressure dataset associated with PFM 2017.

by Josh Felman, Madhur Mehta, Ila Patnaik, Ajay Shah, Bhavyaa Sharma.

The idea of Exchange market pressure (EMP) was introduced by Girton and Roper (1977). It suggests measurement of the total pressure on the exchange rate, some part of which is visible as the change in the exchange rate, and the remainder is resisted by currency trading of the central bank. Many researchers have worked on devising EMP estimators, the most prominent of which are Eichengreen et al. (1996), Sachs et al. (1996), and Kaminsky et al. (1998). EMP measures have been utilised in thousands of papers in international finance and macroeconomics.

In Patnaik et al. (2017) we proposed a new method for calculating EMP which attempts to overcome the well known problems of conventional EMP measures. Alongside this paper, a cross-country dataset was released, which ran from January 1996 to May 2017.

We have done a second release of this dataset, which carries these series forward to November 2018. In this dataset, which is numbered as v2.0, we have 135 countries. On the web page, we have a CSV file of the dataset, and also the few lines of R code that get you going on using it. The URL of this web page will be stable, and the next release will come out with further updation of the dataset in a few months.

In the v1.1 dataset, due to lack of annual macroeconomic data for some countries, the rho values were computed with erroneous confidence bands, which consequently affected the EMP values. We have corrected this error.

In the following paragraphs we compare version 2.0 of the new measure of EMP further for four countries, namely, India, China, Russia, and Brazil against the conventional EMP measure of Eichengreen et al. (1996). This helps give intuition about the gains from the new measure.

Example: EMP for China

In the figure above, the two grey rectangles in the conventional EMP measure plot for China are periods where the value of the EMP measure are near infinity. The new EMP measure does not have this problem.

The new EMP measure shows that in years prior to the Lehmann Brother's collapse, there was persistent appreciation pressure on the RMB. After the Lehman default, a sudden shift in the exchange market pressure can be seen. These phenomena are not present in the conventional measure.

A significant event for China occured on 12 June 2015, when a financial crisis began. The new EMP measure shows this depreciation pressure better than the conventional measure.

Example: EMP for India

In India's case, the Lehman default in 2008 brought about a sharp depreciation in the value of indian rupee. This story is nicely told in the new EMP measure. The conventional measure suggests that there was a switch from depreciation to appreciation pressure at that point.

Prior to the taper tantrum of 2013, the entire year of 2012 had high volatility in the rupee exchange rate. In the tantrum, there was high pressure on the rupee value to depreciate. These facts are well-represented in our measure of EMP, and consistent with a detailed understanding of that period, as opposed to the conventional one.

Example: EMP for Russia

In the case of Russia, the conventional measure fails to show the magnitude of the effect of the Lehman default, the taper tantrum and the Russian invasion of Ukraine in 2014. The new EMP measure has the correct features: that these events imposed depreciation pressure on the rouble.

Example: EMP for Brazil

In the case of Brazil, the Lehman default and the taper tantrum of 2013 imposed high depreciation pressure on the Brazilian real, in the new EMP measure, but not in the conventional measure.


Eichengreen, B., Rose, A., Wyplosz, C., 1996. Contagious Currency Crises, Technical Report. National Bureau of Economic Research.

Patnaik, I., Felman, J. and Shah, A., 2017. An exchange market pressure measure for cross country analysis. Journal of International Money and Finance, 73, pp.62-77.

Desai, M., Patnaik, I., Felman, J. and Shah, A., 2017. A cross-country Exchange Market Pressure (EMP) Dataset. Data in Brief.

Girton, L., and Roper, D., 1977. A monetary model of exchange market pressure applied to the postwar Canadian experience. American Economic Review, vol. 67, pp.537-538

Sachs, J., Tornell, A., Velasco, A., 1996. Financial crises in emerging markets: The lessons from 1995. National Bureau of Economic Research.

Kaminsky, G.A., Lizondo, S. and Reinhart, C.M., 1998. Leading indicators of currency crises. Staff Papers-Int. Monet. Fund (1998), pp. 1-48.

We thank Shekhar Hari Kumar and Namita Goel for their work on this release.

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