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Exchange-rate Attack as a Coordination Game: Theory and Experimental Evidence

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  • Frank Heinemann

Abstract

This paper compares theoretical predictions for a coordination game, used to explain the onset of a currency crisis, with observations from laboratory experiments. Theories that assume full rationality suggest that public information may destabilize an economy by creating self-fulfilling belief equilibria, while private information leads to a unique equilibrium. In experiments, differences in behaviour for these two kinds of information are small. Public information increases efficiency and coordination among players, and there is no evidence for destabilizing effects owing to self-fulfilling beliefs. Copyright 2002, Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 18 (2002)
Issue (Month): 4 ()
Pages: 462-478

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Handle: RePEc:oup:oxford:v:18:y:2002:i:4:p:462-478

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Web page: http://oxrep.oupjournals.org/

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Cited by:
  1. Ralf Elsas & Frank Heinemann & Marcel Tyrell, 2004. "Multiple but Asymmetric Bank Financing: The Case of Relationship Lending," CESifo Working Paper Series 1251, CESifo Group Munich.
  2. Jean-Pierre Allegret & Camille Cornand, 2006. "The Pros and Cons of Higher Transparency: The Case of Speculative Attacks," Post-Print halshs-00137469, HAL.
  3. Childs, Jason, 2009. "Rate of return parity and currency crises in experimental asset markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 157-170, February.
  4. Christina E. Bannier, 2003. "Privacy or Publicity - Who Drives the Wheel?," Game Theory and Information 0309006, EconWPA.
  5. Camille Cornand, 2006. "Speculative Attack and Informational Structure: an Experimental Study," Post-Print halshs-00360088, HAL.
  6. Bannier, Christina E., 2003. "Privacy or Publicity - Who Drives the Wheel?," CFS Working Paper Series 2003/29, Center for Financial Studies (CFS).

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