Market Expectations in the UK Before and After the ERM Crisis

The British pound left the ERM on 16 September 1992 after a period of turbulence. UK monetary policy soon shifted to lower short interest rates and an inflation target was announced. This paper uses daily option prices to estimate how the market's probability distribution of the future marks/pound exchange rate and UK and German interest rates changed over the summer and autumn of 1992. The results show, among other things, how various policy decisions affected the market's assessment of the probabilities of realignments and lending rate cuts.

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Year of publication:	1997-12-08
Authors:	Söderlind, Paul
Institutions:	Economics Institute for Research (SIR), Handelshögskolan i Stockholm
Subject:	Interest rates \| exchange rates \| futures \| options \| risk neutral distribution

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Series:	SSE/EFI Working Paper Series in Economics and Finance.
Type of publication:	Book / Working Paper
Notes:	Old title: Extracting Expectations about UK Monetary Policy 1992 from Option Prices Published in Economica, 2000, pages 1-18. The text is part of a series SSE/EFI Working Paper Series in Economics and Finance Number 210 25 pages
Classification:	E43 - Determination of Interest Rates; Term Structure Interest Rates ; E52 - Monetary Policy (Targets, Instruments, and Effects) ; G13 - Contingent Pricing; Futures Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005649327