Indexing Speculative Pressure on an Exchange Rate Regime: A Case Study of Macedonia

This paper modifies an ad hoc index originated by Eichengreen et al (1995,1996), which is often used to document financial crises in emerging markets. By assuming nonlinear dynamics in a system of financial data, we successfully develop an alternative approach that not only captures the essence of the conventional index but also offers an indicator that leads the crises in-sample. This is very important for policy markers of transitional economies like Macedonia, for which the historical macroeconomic data are often inadequate for existing "early warning sign" systems of potential crises.