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On Nash Equilibria in Speculative Attack Models

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  • Ivan Pastine

Abstract

Since a fixed exchange rate regime is a fixed price system, there is no theoretical reason to presume that the foreign exchange market clears, particularly during a speculative attack. This paper shows that equilibria where we allow for the possibility of such corner solutions are a superset of the previously examined “market-clearing” equilibria. The timing of the balance-of-payments crisis is no longer predictable in the same sense – multiple equilibria exist even in the very simplest speculative attack model.

Suggested Citation

  • Ivan Pastine, 2016. "On Nash Equilibria in Speculative Attack Models," Working Papers 201613, School of Economics, University College Dublin.
    • Handle: RePEc:ucn:wpaper:201613
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    File URL: http://hdl.handle.net/10197/7925
    File Function: First version, 2016
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    More about this item

    Keywords

    Balance-of-payments crises; Fixed exchange rate breakdown;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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