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.
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Find related papers by 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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