Tail Estimates and the Ems Target Zone

K.G. Koedijk; C.J.M. Kool

doi:10.1111/j.1467-9396.1994.tb00037.x

Tail Estimates and the Ems Target Zone

Research output: Contribution to Journal › Article › Academic › peer-review

Abstract

Characteristically, distributions of exchange‐rate returns are fat‐tailed. We use a nonparametric tail‐index estimator based on extreme value theory for seven EMS currencies between April 1979 and October 1991. We find that the behavior of the Belgian franc, the Danish Krone, the French franc, and the Italian lira has become significantly less fat‐tailed over time. We attribute this to the decline in the exchange‐rate variance as observed in the EMS, which according to the target‐zone literature should lead to a convergence of fixed exchange‐rate behavior to that of floating rates. A comparison of tail estimates for the Deutsche mark and dollar exchange rates supports this notion. Copyright © 1994, Wiley Blackwell. All rights reserved

Original language	English
Pages (from-to)	153-165
Journal	Review of International Economics
Volume	2
Issue number	2
DOIs	https://doi.org/10.1111/j.1467-9396.1994.tb00037.x
Publication status	Published - 1994
Externally published	Yes

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title = "Tail Estimates and the Ems Target Zone",

abstract = "Characteristically, distributions of exchange‐rate returns are fat‐tailed. We use a nonparametric tail‐index estimator based on extreme value theory for seven EMS currencies between April 1979 and October 1991. We find that the behavior of the Belgian franc, the Danish Krone, the French franc, and the Italian lira has become significantly less fat‐tailed over time. We attribute this to the decline in the exchange‐rate variance as observed in the EMS, which according to the target‐zone literature should lead to a convergence of fixed exchange‐rate behavior to that of floating rates. A comparison of tail estimates for the Deutsche mark and dollar exchange rates supports this notion. Copyright {\textcopyright} 1994, Wiley Blackwell. All rights reserved",

author = "K.G. Koedijk and C.J.M. Kool",

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AB - Characteristically, distributions of exchange‐rate returns are fat‐tailed. We use a nonparametric tail‐index estimator based on extreme value theory for seven EMS currencies between April 1979 and October 1991. We find that the behavior of the Belgian franc, the Danish Krone, the French franc, and the Italian lira has become significantly less fat‐tailed over time. We attribute this to the decline in the exchange‐rate variance as observed in the EMS, which according to the target‐zone literature should lead to a convergence of fixed exchange‐rate behavior to that of floating rates. A comparison of tail estimates for the Deutsche mark and dollar exchange rates supports this notion. Copyright © 1994, Wiley Blackwell. All rights reserved

U2 - 10.1111/j.1467-9396.1994.tb00037.x

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