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An alternative view of exchange market pressure episodes in emerging Europe: an analysis using Extreme Value Theory (EVT)

Frigyes Ferdinand Heinz and Desislava Rusinova

No 1818, Working Paper Series from European Central Bank

Abstract: Using extreme value theory tools, we demonstrate that the distributions of the exchange market pressure (EMP) series for most of twelve emerging Europe countries have heavy tails, and disregarding their tail properties may lead to substantial underestimation of the probability of tail events. Using an extreme-value-based EMP crisis definition leads to a different set of crisis determinants compared to a definition based on standard errors. The probability of extreme EMP periods in our sample is affected by global risk aversion, regional contagion, the level of international reserves, foreign direct investment, history of past crises and accumulated domestic credit and real exchange rate related imbalances. JEL Classification: C10, E44, F37, F32, G01

Keywords: contagion; Currency crisis; Exchange market pressure; Extreme value theory; Macroeconomic imbalances (search for similar items in EconPapers)
Date: 2015-06
New Economics Papers: this item is included in nep-ifn and nep-rmg
Note: 699943
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20151818

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