Exchange Market Pressure in India

In this paper, we empirically investigate the episodes of currency market stress/crisis in India during the period 1992 – 2012 with the help of a monthly EMP index for India constructed for this period. For the purpose of this paper, we define currency market stress as “extreme pressure” in the currency market, while a currency crisis is defined as a period of two or more continuous and persistent stress in the currency market. 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 argue that EVT provides a better identification of the stress events than the conventional methodologies.