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Speculative attacks with multiple targets

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  • Junichi Fujimoto

Abstract

This paper examines a global games model of speculative attacks in which speculators can choose to attack any one of a number of targets. In the canonical global games model of speculative attacks with a single target, it is well known that there exists a unique equilibrium that survives iterative deletion of dominated strategies, characterized by the threshold values of the private signal and the fundamentals. This paper shows that with two targets, there is again a unique, dominance-solvable equilibrium. In this equilibrium, the threshold value of signal for attacking a given currency is a function of the signal for the other target, and the threshold value of fundamentals that determines the outcome of attack on one currency is a function of the other target’s fundamentals. Under certain condition on the noise distribution, the result is shown to extend to environments with any $$N$$ N symmetric targets. This paper then presents a number of numerical examples and shows, among other results, that more accurate private signals have a decoupling effect on the outcomes of attack on different currencies. Copyright Springer-Verlag Berlin Heidelberg 2014

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  • Junichi Fujimoto, 2014. "Speculative attacks with multiple targets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 89-132, September.
    • Handle: RePEc:spr:joecth:v:57:y:2014:i:1:p:89-132
    DOI: 10.1007/s00199-014-0806-2
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    Cited by:

    1. Junichi Fujimoto, 2014. "Speculative attacks with multiple targets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 89-132, September.
    2. Dzsamila Vonnak, 2018. "Multidimensional global games and some applications," CERS-IE WORKING PAPERS 1803, Institute of Economics, Centre for Economic and Regional Studies.
    3. Zhao Li & Kebin Ma, 2022. "Contagious Bank Runs and Committed Liquidity Support," Management Science, INFORMS, vol. 68(12), pages 9152-9174, December.

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    More about this item

    Keywords

    Currency crises; Speculative attacks; Global games ; Regime change; F31; D84; D82;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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