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Currency attack/defense with two-sided private information

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Author Info
Yuk-shing CHENG
Chi-shing CHAN
Chor-yiu SIN
Abstract

A currency attack fails on its own when the speculator suffers from her financial problem. This paper extends the existing models and argues that the monetary authority?s willingness to peg and the speculator?s cost of attack are private information. Our model thus accounts for the duration of currency attack/defense, and more importantly, allows for failed attack. We employ an asymmetric war of attrition and gauge the time when the speculator stops attacking, or when the monetary authority de-pegs. Comparative static results throw light on the interest rate policy amidst the Exchange Rate Mechanism Crisis and the Asian Currency Crisis

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 395.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:395

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Related research
Keywords: Asymmetric war of attrition Credibility of policymakers Failed speculative attack Persistent effect Two-sided private information

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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