This study has two objectives: first, it tries to explain both exchange rate movements and official intervention through the use of a single dependent variable, Exchange Market Pressure (EMP); second, it provides a measure of the degree of monetary autonomy that a country possesses. These objectives are evaluated within the framework of a bilateral model comprising India and Rest of the World, over the period covering January 1980 to July 1998. The study uses the Girton and Roper (1977) monetary model of EMP which is modified to incorporate explicitly the role played by expectations in generating EMP. The conclusion reached is that the modified model performs much better than the original Girton and Roper(G-R) model in explaining EMP, and that the results could probably be further improved by using a model that embodies the general equilibrium approach as opposed to the partial equilibrium approach of the G-R model and the modified version used in this study.
