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Tail behaviour of the euro

  • John Cotter

This paper empirically analyses risk in the euro relative to other currencies. Comparisons are made between a subperiod encompassing the final transitional stage to full monetary union with a subperiod prior to this. Stability in the face of speculative attack is examined using Extreme Value Theory to obtain estimates of tail exchange rate changes. The findings are encouraging. The euro's common risk measures do not deviate substantially from other currencies. Also, the euro is stable in the face of speculative pressure. For example, the findings consistently show the euro being less risky than the yen, and having similar inherent risk to the Deutsche mark, the currency that it is essentially replacing.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0003684042000338694
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 7 ()
Pages: 827-840

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Handle: RePEc:taf:applec:v:37:y:2005:i:7:p:827-840
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  1. Koedijk, Kees G & Kool, Clemens J M, 1994. "Tail Estimates and the EMS Target Zone," Review of International Economics, Wiley Blackwell, vol. 2(2), pages 153-65, June.
  2. Dooley, Michael, 1998. "Speculative Attacks on a Monetary Union?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(1), pages 21-26, January.
  3. Phillip Kearns & Adrian Pagan, 1997. "Estimating The Density Tail Index For Financial Time Series," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 171-175, May.
  4. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. G Alogoskoufis & R Portes & H Rey, 1998. "The Emergence of the Euro as an International Currency," CEP Discussion Papers dp0388, Centre for Economic Performance, LSE.
  6. Phillips, Peter C B & McFarland, James W & McMahon, Patrick C, 1996. "Robust Tests of Forward Exchange Market Efficiency with Empirical Evidence from the 1920s," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(1), pages 1-22, Jan.-Feb..
  7. Geert Bekaert & Stephen F. Gray, 1999. "Target Zones and Exchange Rates: An Empirical Investigation," NBER Working Papers 5445, National Bureau of Economic Research, Inc.
  8. Ghose, Devajyoti & Kroner, Kenneth F., 1995. "The relationship between GARCH and symmetric stable processes: Finding the source of fat tails in financial data," Journal of Empirical Finance, Elsevier, vol. 2(3), pages 225-251, September.
  9. Peter C.B. Phillips & Sam Ouliaris, 1987. "Asymptotic Properties of Residual Based Tests for Cointegration," Cowles Foundation Discussion Papers 847R, Cowles Foundation for Research in Economics, Yale University, revised Jul 1988.
  10. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
  11. Fong, Wai Mun, 1998. "The Dynamics of DM/L Exchange Rate Volatility: A SWARCH Analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(1), pages 59-71, January.
  12. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  13. Koedijk, Kees G. & Stork, Philip A. & de Vries, Casper G., 1992. "Differences between foreign exchange rate regimes: The view from the tails," Journal of International Money and Finance, Elsevier, vol. 11(5), pages 462-473, October.
  14. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 1999. "Exchange Rate Returns Standardized by Realized Volatility Are (Nearly) Gaussian," Center for Financial Institutions Working Papers 00-29, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  17. Caporale, Guglielmo Maria & Pittis, Nikitas, 1996. "Modelling the sterling-deutschmark exchange rate: Non-linear dependence and thick tails," Economic Modelling, Elsevier, vol. 13(1), pages 1-14, January.
  18. Loretan, Mico & Phillips, Peter C. B., 1994. "Testing the covariance stationarity of heavy-tailed time series: An overview of the theory with applications to several financial datasets," Journal of Empirical Finance, Elsevier, vol. 1(2), pages 211-248, January.
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  21. Neely, Christopher J., 1999. "Target zones and conditional volatility: The role of realignments," Journal of Empirical Finance, Elsevier, vol. 6(2), pages 177-192, April.
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  25. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
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