Constructing an exchange market pressure index: a mechanism for predicting currency crises in The Gambia

Joof, Foday (2024): Constructing an exchange market pressure index: a mechanism for predicting currency crises in The Gambia.

Abstract

The aim of this paper is to construct an early warning signaling mechanism (exchange rate market pressure index) for predicting currency crises in The Gambia. The analysis revealed that the Gambian economy suffered six major currency crises between 2002 and 2023. These episodes stemmed from both domestic and external shocks, with more vulnerability from domestic shocks. However, the observed pressures are mostly short-lived with market absorbing shocks, on average between 1-2 months. Importantly, a threshold has been determined to identify pressures in the Forex market before a currency crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate market pressure index, Currency crises, The Gambia
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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