Extracting Expectations about 1992 UK Monetary Policy from Option Prices

CEPR Discussion Paper Series Number 1823

Posted: 15 Jul 1998  

Paul Söderlind

University of St. Gallen; Centre for Economic Policy Research (CEPR); University of St. Gallen - School of Finance

Date Written: March 1998

Abstract

The UK 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 Deutsche mark/sterling 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.

JEL Classification: E43, E52, G13

Suggested Citation

Söderlind, Paul, Extracting Expectations about 1992 UK Monetary Policy from Option Prices (March 1998). CEPR Discussion Paper Series Number 1823. Available at SSRN: https://ssrn.com/abstract=106370

Paul Söderlind (Contact Author)

University of St. Gallen ( email )

Rosenbergstrasse 52
St. Gallen, 9000
Switzerland
+41 71 224 7064 (Phone)
+41 71 224 7088 (Fax)

HOME PAGE: http://https://sites.google.com/site/paulsoderlindecon/home

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