Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks
AbstractEven though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge, the authors demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals. This unique equilibrium depends not only on the fundamentals but also on financial variables, such as the quantity of hot money in circulation and the costs of speculative trading. In contrast to multiple equilibrium models, the authors' model allows analysis of policy proposals directed at curtailing currency attacks. Copyright 1998 by American Economic Association.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 88 (1998)
Issue (Month): 3 (June)
Other versions of this item:
- Morris, S & Song Shin, H, 1996. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," Economics Papers 126, Economics Group, Nuffield College, University of Oxford.
- Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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