BoE paper: ‘tails’ matter when studying global financial cycle

Bank of England blue sky

Studying the distribution of exchange rate returns can give a more complete picture of how exchange rate risks vary with the global financial cycle, researchers say in a new Bank of England working paper.

Fernando Eguren-Martin and Andrej Sokol note the idea of a global cycle as captured by the co-movement in asset prices is well understood by economists. But exchange rates are relative prices, so they cannot all rise in tandem. But, they say, looking at the tails of the distribution can help.

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