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This study derives an exchange market pressure (EMP) index by using a weighted and scaled sum of exchange rate depreciation, official foreign exchange intervention, and interest rate differential for the period 1999–2023. Using the US dollar as a reference currency, it includes various balance of payments components of the EMP for comparing and analysing capital flow pressures for emerging economies such as Argentina, Brazil, China, India, Indonesia, Korea, Mexico, Russia, South Africa, and Turkey. The study also analyses the volatility of the EMP in response to capital inflow and outflow controls, utilising EGARCH estimation. Our findings indicate that higher capital controls are generally associated with greater EMP, though the effects differ between inflow and outflow restrictions. We also find that EMP volatility reacts asymmetrically to shocks, with stronger responses to positive developments (‘good news’) than to negative ones (‘bad news’). These results highlight the importance of tailoring capital flow management tools to country-specific vulnerabilities and global financial conditions.
Akdogan et al. (Wed,) studied this question.