Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82350
Authors: 
Abildgren, Kim
Year of Publication: 
2013
Series/Report no.: 
Danmarks Nationalbank Working Papers 84
Abstract: 
We offer a closer look at the frequency distribution of nominal price changes in the foreign exchange markets for a sample of 10 European exchange-rate pairs on the basis of a unique quarterly data set spanning 273 years. Our analysis clearly illustrates the risk of seriously underestimating the probability and magnitude of tail events when frequency distributions of nominal exchange-rate changes are derived on the basis of fairly short data samples. We suggest that financial institutions and regulators should have an eye for the long-term historical perspective as a source of inspiration when designing worst case scenarios or severe stress scenarios in relation to risk assessments and stress tests.
Subjects: 
economic history
realised exchange-rate volatility
risk management
fat tailed distributions
kernel density estimation
JEL: 
C14
C58
F31
G32
N23
N24
Document Type: 
Working Paper

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