Exchange market pressure in India

Abstract

We empirically investigate episodes of currency market stress in India during the period January 1992–August 2014 with the help of a monthly EMP index for India constructed for this period. We analyse the distribution of the extreme values of the EMP index by using Extreme Value Theory (EVT) and utilize the knowledge of the extreme values of our EMP index to identify currency market stress in India during this period. We analyse these stress episodes in the context of the prevailing economic situation. We also present a decomposition of the contribution of different factors towards exchange market pressure.