Exchange market pressure in Thailand: an application of the Girton-Roper monetary model.

Abstract

This thesis deals with Exchange Market Pressure (EMP) in Thailand, through an application of the Girton and Roper monetary model. The reason for conducting such a research was the fact that EMP can be used as a measure for identifying the existence of currency crises. The resent world economic crisis that has hit almost every part of the globe was the inspiration which created the thought of dealing with such an issue. EMP is a useful index for measuring currency crises and it is the only one suitable for every exchange rate regime. At first, a theoretical analysis of the definition of EMP and its relation with currency crises is presented. The Girton and Roper monetary model is analyzed and explained. Then, the time series of the EMP index for Thailand is created and it is examined if its behavior provides any signs of the onset of a currency crisis. In addition, we try to identify if the macroeconomic variables are supposed to influence the value of the index according to Girton-Roper model (GR model) are confirmed. Moreover, we examine whether the distribution of EMP between exchange rate changes and changes in international reserves influences the value of the index, and which of the two components (exchange rate change or international reserve change) better absorbs foreign exchange market pressure. The results are very close to the GR model.