Paper: Central bank credibility during ERM crisis

Financial markets embed expectations of central bank policy into asset prices. The Working Paper "Assessing central bank credibility during the ERM crises: Comparing option and spot market-based forecasts" from the Center for Financial Studies 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

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