The [Brutalist Housing Block] Sticky. Come shoot the shit and discuss the bad economics. - 03 December 2020

Say most countries are on the gold standard and were interested in using doing a VAR to estimate the effect of exchange rates on the price level. On most days of your time series the change in the exchange rate between any two countries will be pretty close to zero. There might be small deviations but those are all probably going to be endogenous.

Then, the president decides to repeg the price of gold to some random number (see FDR's gold repurchase program). Youll see a large change in exchange rates for a while but theyll probably restabilize to reflect the new gold price at some point. So the points with larger price changes are outliers.

If we have evidence that the repeg was truly random, then these outlier points surely give us more valuable information about exogenous exchange rate shocks, right? It just seems weird to me. Aren't most exogenous shocks outlier data points? I think /u/integralds made a similar point regarding inflation forecasts.

/r/badeconomics Thread Parent