Recently, the authorities of the Dominican Republic have permitted more exchange rate flexibility while attempting to increase gross official reserves. Under a managed float, as in the Dominican Republic, it is inappropriate when assessing the stance of monetary policy to examine either of these variables (exchange rate and reserve changes) in isolation. Instead, exchange rate and reserve movements should be combined to form a measure of exchange market pressure (EMP), which is defined as the sum of exchange rate depreciation and outflows of official international reserves.
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