NBER International Seminar on Macroeconomics 2005 by Jeffrey A. Frankel, Christopher A. Pissarides

By Jeffrey A. Frankel, Christopher A. Pissarides

Major American and eu economists speak about financial and monetary coverage from a global macroeconomic point of view in a better half quantity to the NBER Macroeconomics Annual: state of the art study on macroeconomic concerns and topical questions about the eastward enlargement of the eu financial Union.

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Further, we show that option prices are typically quite close to the empirical distribution of outcomes. We then explore the corollary of these results, investigating what the pricing of these options implies about risk aversion. Using option prices to make inference about risk and risk aversion is not a new idea, but is seldom attempted in the literature due to the complications arising from properties of standard options—complications that are not present in the economic derivatives market. In important papers, Jackwerth (2000) and Aït-Sahalia and Lo (2000) analyzed options on the S&P 500 to derive measures of risk aversion.

Estimating 3 parameters across each of 4 data series we find only two coefficients that are individually statistically distinguishable from the efficiency null. For each series we perform a likelihood ratio test that jointly tests whether the estimated models significantly deviate from the efficiency null. d. uniform requirement. 37) 26 64 153 Notes: (Standard errors in parentheses) ***, **, and * denote statistically significant deviations from the null at 1 percent, 5 percent, and 10 percent, respectively.

For the MMS forecast, the “consensus” forecast typically averages across around 30 forecasters. 9 As such, we implicitly assume that the price of a digital option is equal to the average belief that the specified outcome occurs. Wolfers and Zitzewitz (2005) discuss the relationship between prediction market prices and beliefs. We return to this issue in later sections, showing that ignoring risk aversion does very little violence to the data. Figure 2 shows the relative forecasting performance of the surveyand market-based forecasts.

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