This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Defense Policies Against Currency Attacks: on the Possibility of Predictions in a Global Game with Multiple Equilibria

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
George-Marios Angeletos
Alessandro Pavan
Christian Hellwig

Additional information is available for the following registered author(s):

Abstract

This paper studies defense policies in a global-game model of speculative currency attacks. Although the signaling role of policy interventions sustains multiple equilibria, a number of novel predictions emerge which are robust across all equilibria. (i) The central bank intervenses by raising domestic interest rates, or otherwise raising the cost of speculation, only when the value it assigns to defending the peg - its "type" - is intermediate. (ii) Devaluation occurs only for low types. (iii) the set of types who intervene shrinks with the precision of market information. (iv) A unique equilibrium policy survives in the limit as the noise in market information vanishes, whereas the devaluation outcome remains indeterminate. (v) The payoff of the central bank is monotonic in its type. (vi) The option to intervene can be harmful only for sufficiently strong types; and when this happens, weak types are necessarily better off. While these predictions seem reasonable, none of them would have been possible in the common-knowledge version of the model. Combined, these results illustrate the broader methodological point of the paper: global games can retain significant selection power and deliver useful predictions even when the endogeneity of information sustains multiple equilibria.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://faculty.wcas.northwestern.edu/%7Eapa522/AHP-RP.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Fran Walker)
File Format: application/pdf
File Function: main text
Download Restriction: no

Publisher Info
Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1459.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:nwu:cmsems:1459

Contact details of provider:
Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Phone: 847/491-3527
Fax: 847/491-2530
Email:
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: (Fran Walker).

Related research
Keywords: global games robust predictions signaling currency crises regime change multiple equilibria.

Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
F3 - International Economics - - International Finance

This paper has been announced in the following NEP Reports:

Statistics
Access and download statistics

Did you know? Over 800 institutions contribute their bibliographic data directly to this service.

This page was last updated on 2008-9-21.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.