TY  - JOUR
AU  - Campa,Jose M.
AU  - Chang,P.H. Kevin
AU  - Refalo,James F.
TI  - An Options-Based Analysis of Emerging Market Exchange Rate Expectations:  Brazil's Real Plan, 1994-1997
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6929
PY  - 1999
Y2  - February 1999
UR  - http://www.nber.org/papers/w6929
L1  - http://www.nber.org/papers/w6929.pdf
N1  - Author contact info:
Jose M. Campa
IESE Business School
Camino del Cerro del Aguila, 3
28023 Madrid
SPAIN
Tel: 34-91-357-0809
Fax: 34-91-357-2913
E-Mail: jcampa@iese.edu
AB  - This paper uses currency option data from the BMF, the Commodities and Futures exchange in Sao Paulo, Brazil, to investigate market expectations on the Brazilian Real-U.S. dollar exchange rate from October 1994 through July 1997.  Using options data, we derive implied probability density functions (PDF) for expected future exchange rates and thus measures of the credibility of the  crawling peg' and target zone ( maxiband') regimes governing the exchange rate.  Since we do not impose an exchange rate model, our analysis is based on either the risk-neutral PDF or arbitrage-based tests of target zones.  The paper one of the first to use options data from an emerging market, finds that target zone credibility was poor prior to February 1996, but improved afterwards.  The market anticipated periodic band adjustments, but over time developed greater confidence in the Real.  We also test whether devaluation intensities estimated from these option prices can be explained by standard macroeconomic factors.
ER  -