ECB paper models joint default risk with fat tails
Tail risk subsided after OMT programme was announced
Economists identify "unprecedented" joint tail risks in the eurozone using a new modelling technique in a working paper published today (August 6) by the European Central Bank (ECB).
The paper, Modeling financial sector joint tail risk in the euro area, by André Lucas, Bernd Schwaab and Xin Zhang, eschews a Gaussian or normal distribution in favour of one that allows fatter tails – a higher likelihood of extreme events – and greater skewness, with time-varying uncertainty.
Studying the period
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