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Dynamic Speculative Attacks

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  • Christophe Chamley

Abstract

This paper presents a model of rational Bayesian agents with speculative attacks in a regime of exchange rate which is pegged within a band. Speculators learn from the observation of the exchange rate within the band whether their mass is sufficiently large for a successful attack. Multiple periods are necessary for the existence of speculative attacks. Various defense policies are analyzed. A trading policy by the central bank may defend the peg if it is unobserved and diminishes the market's information for the coordination of speculators.

Suggested Citation

  • Christophe Chamley, 2003. "Dynamic Speculative Attacks," American Economic Review, American Economic Association, vol. 93(3), pages 603-621, June.
    • Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:603-621
    DOI: 10.1257/000282803322157007
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    References listed on IDEAS

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