Measuring the Financial Markets' Perception of EMU Enlargement: The Role of Ambiguity Aversion

Abstract

Market views on EMU enlargement are measured by a new indicator based on the short-term dynamics of forward spreads. Conceptually, this indicator stems from the notion of uncertainty averse agents and equilibrium indeterminacy. The method was applied on data from central European countries, including the Czech Republic, Hungary, Poland and Slovakia. Comparing our results with financial market opinion surveys, the results of the proposed method seems to be in accordance with market expectations.Ambiguity aversion, EMU calculators, EMU Enlargement, EMU Poll, forwards,uncertainty.