Exchange Market Pressure and Intervention Index for Pakistan: Evidence from a Time-Varying Parameter Approach
Abstract
The paper uses the approach of Weymark
(1995) for constructing exchange market pressure and
intervention index for Pakistan and to account for potential
linearity. A rolling regression indicates unstable real money
demand and price equation estimates. Consequently, a Kalman
filter approach is used for evaluating the effects of structural
changes on parameter constancy. The results indicate unstable
real money demand and price equation parameters. The evidence
shows downward pressure and active Central Bank intervention.
Exchange Market Pressure mean value for the first half is higher
than the second half of the sample period suggesting the postreform
period as more tranquil.
Keywords
Financial markets, Term structure of interest rate, Central Bank Intervention.
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