Even though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge, we 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 money in criculation and the costs of speculative trading. In contrast to multiple equilibrium models, our model allows analysis of policy proposals directed at curtailing currency attacks.
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number
126.
Find related papers by JEL classification: F31 - International Economics - - International Finance - - - Foreign Exchange D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
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