Remarks on models of currency crises and the existance of multiple equilibria
AbstractThe aim of this paper is a reconsideration of some features of first and second generation models of currency crises and some conclusions from these models. In particular, theoretical justification for the existence of multiple equilibria is put under discussion in a broader context of uncertainity and expectations. The role that different assumptions concerning government and monetary authority’s behaviour play in the determination of the results of first generation models is analyzed and thedeterministic character of these models which does not allow for multiple equilibria is explained. An explanation is suggested why equilibria can be in practice unstable when the rule of central bank’s (government’s) behaviour is not clear as it is in the models. The structure of a second generation model is analyzed with an intention to explain that for the existence of multiple equilibria there must be a convincing justification based on the game theory which the second generation lacks. It is also pointed out that an equilibrium may not exist at all. It is argued in this paper that in the world of rational expectations and perfect foresight a change of an equilibrium is possible only due to an external shock. Vulnerability of a fixed exchange rate to shocks is thus an important issue. Consequently, some features of an economy and economic policy which make fixed exchange rate vulnerable to external shocks are discussed.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 28.
Date of creation: 2003
Date of revision:
Contact details of provider:
Postal: 00-919 Warszawa ul. Świętokrzyska 11/21
Phone: (0-22) 653 10 00
Fax: (0-22) 620 85 18
Web page: http://www.nbp.pl/Homen.aspx?f=en/publikacje/materialy_i_studia/informacja_en.html
More information through EDIRC
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ewa Szymecka).
If references are entirely missing, you can add them using this form.