If there is exchange market pressure (EMP), monetary authorities can use the interest rate and official interventions to offset this depreciation tendency, or they can let the exchange rate change. We introduce a new approach to derive how these three variables should be combined to measure EMP....

The problem is to evaluate the likelihood that a country will face a currency or balance of payments crisis over a given horizon. When is it rational for market participants to expect a depreciation of the currency? On the basis of considerable empirical studies we know that in both banking and...