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Large Swings in Currencies driven by Fundamentals

Author

Listed:
  • Phornchanok Cumperayot

    (Chulalongkorn University)

  • Casper G. de Vries

    (Erasmus Universiteit Rotterdam)

Abstract

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.

Suggested Citation

  • Phornchanok Cumperayot & Casper G. de Vries, 2006. "Large Swings in Currencies driven by Fundamentals," Tinbergen Institute Discussion Papers 06-086/2, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20060086
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    References listed on IDEAS

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    Cited by:

    1. Babus, Ana & de Vries, Casper G., 2010. "Global stochastic properties of dynamic models and their linear approximations," Journal of Economic Dynamics and Control, Elsevier, vol. 34(5), pages 817-824, May.

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    More about this item

    Keywords

    exchange rates; fundamentals; fat-tailed distributions;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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