Identifying Extreme Values of Exchange Market Pressure
AbstractThis paper contributes to the existing literature on dating currency crisis in three ways. First, we combine the Monte Carlo simulation with a modified Hill’s estimator method to obtain more robust results and efficiently deal with bias variance tradeoff in identifying extreme values. Second, we propose a systematic way to choose the reference country in building the Exchange Market Pressure index rather than arbitrary or descriptive reasoning. Third, different data frequencies are applied and the results are evaluated. Our finding suggests that higher frequency data are more appropriate while applying Extreme Value Theory. It urges researchers to be more cautious in applying EVT and interpreting tail incidences that are obtained from lower frequency data.
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Bibliographic InfoPaper provided by Carleton University, Department of Economics in its series Carleton Economic Papers with number 11-10.
Length: 40 pages
Date of creation: 10 Nov 2011
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Publication status: Published: Carleton Economic Papers
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
- G01 - Financial Economics - - General - - - Financial Crises
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