MEASURING EXCHANGE MARKET PRESSURE IN INDIA: A GENERAL APPROACH

Abstract

This research proposes a general and empirical approach to measure Exchange Market Pressure (EMP) in India during 2001Q3 to 2022Q3. Existing models like the Girton-Roper Model impose structural restrictions and make assump tions about currency regimes. The proposed approach identifies components and weights of the EMP index through econometric estimation with minimal con straints. Three new EMP indices are constructed using this general method and compared with the Girton-Roper EMP index. The study estimates determinants affecting EMP through regression analysis and identifies periods of extreme cur rency stress in India based on the Eichengreen, Rose, and Wyplosz crisis thresh old. The findings indicate that India experienced multiple currency crises during 2008-2022, with significant stress periods occurring in 2011Q4 and 2020Q1, align ing with global uncertainty periods. The research contributes a versatile EMP measurement approach applicable across currency regimes and provides insights for policymakers to monitor and manage exchange market pressures effectively.