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- 2005, 09
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Assessing Central Bank credibility during the ERM crises : comparing option and spot market-based forecasts
(2005)
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Markus Haas
Bruce Mizrach
- Financial markets embed expectations of central bank policy into asset prices. This paper compares two approaches that extract a probability density of market beliefs. The first is a simulatedmoments estimator for option volatilities described in Mizrach (2002); the second is a new approach developed by Haas, Mittnik and Paolella (2004a) for fat-tailed conditionally heteroskedastic time series. In an application to the 1992-93 European Exchange Rate Mechanism crises, that both the options and the underlying exchange rates provide useful information for policy makers. Klassifikation: G12, G14, F31. First Version: October 2004. This Version: February 2005.
