This paper characterizes exchange market pressure as a nonlinear Markov-switching phenomenon, and examines its dynamics in response to money growth and inflation over three regimes. The empirical results identify episodes of exchange market pressure in the Kyrgyz Republic and confirm the...

Recent empirical research on the effects of monetary policy shocks on exchange rate fluctuations have encountered the exchange rate puzzle and the forward discount bias puzzle. The exchange rate puzzle is the tendency of the domestic currency (of non-U.S. G-7 countries) to depreciate against the...