BoE paper examines exchange rate return distribution tails

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. Yet, exchange rates are relative prices, so they cannot all rise in tandem. But, the authors say, looking at the tails of the distribution