0
$\begingroup$

Does anyone knows how to calculate the exchange market pressure?

I am using the following paper to calculate the EMP, but I am not sure if I am calculating the relative precesion correctly.

Bussiere & Fratzcher (2002) TOWARDS A NEW EARLY WARNING SYSTEM OF FINANCIAL CRISES

My Stata code:

gen dreer= (reer-L.reer)/L.reer
gen dr= (r-L.r)
gen dres= (res-L.res)/L.res


* variance
egen sdreer = sd(dreer)
gen varreer = sdreer^2

egen sdr = sd(dr)
gen varr = sdr^2

egen sdres = sd(dres)
gen varres = sdres^2

* inverse variance

gen oreer=1/varreer
gen or=1/varr
gen ores=1/varres




* emp
gen emp= oreer*(dreer)+or*(dr)+ores*(dres)


egen muemp= mean(emp) 
egen sdemp= sd(emp) 
gen two_sdemp= 2*sdemp
gen two_sdemp_pmu=two_sdemp+muemp

gen cc=0
replace cc=1 if emp>=two_sdemp_pmu
replace cc=0 if emp==. 

tab cc

The strange thing is that this doesn't generate a crises for the 1992 (Black Wednesday) and that's why I think that I am missing something.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.