This paper argues that the predominant method of estimating equilibrium relationships in macroeconometric models, namely the VECM system of Johansen, is severely flawed if the underlying variables are distributed as near unit root processes. Researchers may apply cointegration techniques to...

The conventional Exchange Market Pressure Index (EMPI), originated from Girton and Roper (1977) and popularized by Eichengreen <italic>et al.</italic> (1994, 1995) and Weymark (1995), uses weighted average of loss of foreign reserves and depreciation of local currency to capture foreign exchange market pressure....

This article tackles the issue of reserve adequacy measure by examining the interaction of high reserves and weak fundamentals in crises. The author extends the analysis of Sachs et al. (1996) by adopting on two-step regressions. The first helps find the significant weak fundamental variables....