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Title: Fundamentals and joint currency crises
Abstract
In this note we demonstrate that in affine models for bilateral exchange rates, the nature of return interdependence during crises depends on the tail properties of the fundamentals' distributions. We denote crisis linkages as either strong or weak, in the sense that the dependence remains or vanishes asymptotically. We show that if one currency return reaches crisis levels, the probability that the other currency breaks down as well vanishes asymptotically if the fundamentals' distributions exhibit light tails (like e.g. the normal). However, if the marginal distributions exhibit heavy tails, the probability that the other currency breaks down as well remains strictly positive even in the limit. This result implies that linearity and heavy tails are sufficient conditions for joint or contagious currency crises to happen systematically through fundamentals. [Philipp Hartmann, Stefan Straetmans and Casper de Vries]
Author: Hartmann, Philipp | Straetmans, Stefan | Vries, Casper de
Series Title: Working paper series / European Central Bank ; 324
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: Financial crisisInternational financial marketExchange rateCurrency crisis
Subject: Currency. Monetary policyInvestment returns. Financial market. Interest rates
Online Ressource: vorübergehend nicht erreichbar!
Bitte beachten Sie die urheberrechtlichen Bedingungen der Dokumentenbenutzung / Please observe the copyright when accessing the document | Quelle / Source: Europäische Zentralbank (http://www.ecb.int)
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