Large Swings in Currencies driven by Fundamentals
Exchange rate returns are fat-tailed distributed. We provide evidence that the apparent non-normality derives from the behavior of macroeconomic fundamentals. Economic and probabilistic arguments are offered for such a relationship. Empirical support is given by testing against normality and through investigating the tail shapes of the fundamentals' distributions. The currently available data sets on floating exchange rates permit a clearer picture than the relatively short spans with macroeconomic data available previously.
|Keywords||exchange rates, fat-tailed distributions, fundamentals|
Cumperayot, P., & de Vries, C.G.. (2006). Large Swings in Currencies driven by Fundamentals (No. TI 06-086/2). Discussion paper / Tinbergen Institute. Retrieved from http://hdl.handle.net/1765/8073