Tail behaviour of the euro

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Abstract:

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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/0003684042000338694

Affiliations: Centre for Financial Markets, Graduate School of Business, University College Dublin, Blackrock, Co. Dublin, Ireland, Email: john.cotter@ucd.ie

Publication date: April 20, 2005

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