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Working Paper

On the Use of Market-Based Probabilities for Policy Decisions

Roc Armenter

Executive Vice President, Economist, and Director of Research and of the Consumer Finance Institute

December 2015

WP 15-44 — This paper seeks to delimit the conditions so that market-based probabilities provide all the information required by the policymaker to arrive at the best decision possible.

While there are several practical considerations regarding how to derive market-based probabilities from financial prices, the discussion here is confined to a theoretical analysis that assumes no impediment to obtaining the market-based probabilities.

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