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On the use of market-based probabilities for policy decisions

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  • Roc Armenter

Abstract

This paper seeks to delimit conditions so that market-based probabilities provide all the information the policymaker needs to arrive at the best possible decision. Although there are practical considerations regarding how to derive market-based probabilities from financial prices, the author confines the discussion to a theoretical analysis that assumes no impediment to obtaining the market-based probabilities.

Suggested Citation

  • Roc Armenter, 2015. "On the use of market-based probabilities for policy decisions," Working Papers 15-44, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:15-44
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    References listed on IDEAS

    as
    1. Kitsul, Yuriy & Wright, Jonathan H., 2013. "The economics of options-implied inflation probability density functions," Journal of Financial Economics, Elsevier, vol. 110(3), pages 696-711.
    2. Michael D. Bauer & Glenn D. Rudebusch, 2013. "Expectations for monetary policy liftoff," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov18.
    3. Michael D. Bauer, 2014. "Options-based expectations of future policy rates," FRBSF Economic Letter, Federal Reserve Bank of San Francisco.
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