Tracing Exchange Rate Volatility in Cambodia, Laos, Myanmar and Vietnam (CLMV)

The general aim of this paper is to examine the eectiveness of the ExchangeMarket Pressure (EMP) index in suciently tracing the presence ofeconomic crises. The index was unveiled by Girton and Roper (1977) toassist policy makers in responding conclusively when severe compressionsin currencies emerge. This study provides a better acumen for how smallopen economies maintain and stabilize their exchange rates and keep othermacroeconomic variables under control through policy responses by means ofan investigation of the CLMV countries (i.e., Cambodia, Lao Peoples DemocraticRepublic (LPDR), Myanmar and Vietnam). By computing the EMPindex using the methods in Eichengreen et al. (1996), Sachs et al. (1996),and Kaminsky et al. (1998), we monitor and predict the future pace of theCLMV foreign exchange markets. Our ndings reveal several EMP signalsand its potential impact over the sample period. The EMP index plots alsoallow us to witness CLMVs quick recovery from these crises through policyresponses. These ndings indicate the eectiveness of the EMP index as anearly warning system in detecting the market pressure on the CambodianRiel, Laos Kip, Myanmar Kiat and Vietnam Dong especially during crises,through the dierent exchange rate regimes