MARIA SOCORRO GOCHOCO-BAUTISTA University of the Philippines Diliman, Quezon City, Philippines Periods of Currency Pressure: Stylized Facts and Leading Indicators* The de-facto devaluation of the Thai baht in July" 1997 began the currency turmoil in Asia. Speculative pressures on a currency may sometimes lead to large changes in the nominal ex- change rate, but can also be prevented through foreign exchange market intervention and/or high domestic interest rates. This study uses monthly data for the Philippines over the period 1980 to 1997 to identify currency pressure periods and decipher stylized facts by examining the behavior of certain indicator variables during currency pressure periods and during tranquil periods. A probit model is used to determine which of the indicator variables significantly explain the probability that such currency pressures will occur. 1, Introduction On July 2, 1997, the Thai baht was effectively devalued and began the so-called Asian currency crisis. The Philippine peso, which had been stable in the previous two years, suddenly lost about 15% of its value relative to the dollar on July 11, 1997. Like many other "emerging" markets, the Philippines experienced large capital inflows in the early 1990s_ Philippine authorities initially ster- ilized these in order to avoid an expansion in the money supply and reduce pressure on the nominal exchange rate. In 1992, the authorities conducted open market operations via the issuance of Central Bank bills and borrowings under the Central Bank's reverse repurchase facility. 1 The proceeds of gov- ernment borrowing through the issue of securities were deposited with the Central Bank between 1992 and 1994. 2 However, there is a limit to a policy of sterilization. Sterilization tends to raise domestic interest rates and attract more inflows, as well as impose *I thank W. Douglas McMillin and two anonymous referees for their comments and Carlos Bantista and Michael Alba for helpful discussions on the empirical methodology. The National Economic and Development Authority"and the Philippine Center for Economic Development provided financial support. 1International Monetary Fund (1995, 81). 2International Monetary Fund (1995, 84). Journal of Macroeconomics, Winter 2000, Vol. 22, No. 1, pp. 125-158 Copyright © 2000 by Louisiana State University Press 0164-0704/2000/$1.50 125