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Call for Papers: PIER Research Workshop 2025
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14 September 2015
20151442188800000
No. 001

Stability of Thai Baht: Tales from the Tails

Phornchanok Cumperayot Kouwenberg

Abstract

We demonstrate how the EVT-based signalling approach for currency crises can be applied to an individual country with a small sample size. Using Thai historical data, first, we study the tail characteristics of the distributions of two Thai baht instability measures and 21 economic fundamentals. Then, we test asymptotic dependence between the currency instability measures and lagged economic fundamentals. Empirically, we find that the distributions of both currency instability measures and economic variables are heavy tailed. Assuming a normal distribution for the variables tends to underestimate the probability of extreme events. Furthermore, most of the economic variables which are usually used as signalling indicators for currency crises are asymptotically independent of the currency instability measures. Signals issued by these variables are thus not reliable. Nevertheless, the non-parametric EVT approach facilitates the selection of economic indicators with credible signals and high crisis prediction success.

Phornchanok Cumperayot Kouwenberg
Phornchanok Cumperayot Kouwenberg
Chulalongkorn University
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JEL: F31E44C14G01
Tags: thai bahtexchange rate instabilityextreme value theory
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Phornchanok Cumperayot Kouwenberg
Phornchanok Cumperayot Kouwenberg
Chulalongkorn University

Puey Ungphakorn Institute for Economic Research

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