Cumperayot, P. and de Vries, CasperG. (2026). Extremes in FX returns and fundamentals Journal of International Money and Finance, 161.
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Affiliated authorCasper de Vries
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Publication year2026
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JournalJournal of International Money and Finance
The likelihood of extreme FX returns is way higher than predicted by the normal distribution. Theory holds that macroeconomic fundamental shocks drive the exchange rate. If so, are there any extreme linkages between the variables? This article directly links large movements in exchange rates to economic fundamentals by means of multivariate extreme value theory (EVT). We find evidence for such a linkage between large depreciations and increases in money supply, prices, and interest rates. The relationship in the tails between the FX returns and observed monetary variables is documented during currency crisis episodes in Asian and Latin American countries.