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Dynamic Speculative Attacks

  • Christophe Chamley

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/000282803322157007
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 93 (2003)
Issue (Month): 3 (June)
Pages: 603-621

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Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:603-621
Note: DOI: 10.1257/000282803322157007
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  1. Maurice Obstfeld, 1995. "Models of Currency Crises with Self-Fulfilling Features," NBER Working Papers 5285, National Bureau of Economic Research, Inc.
  2. Guesnerie, R., 1989. "An Exploration of the Eductive Justifications of the Rational Expectations Hypotbesis," DELTA Working Papers 89-24, DELTA (Ecole normale supérieure).
  3. Sanford J. Grossman, 1981. "An Introduction to the Theory of Rational Expectations Under Asymmetric Information," Review of Economic Studies, Oxford University Press, vol. 48(4), pages 541-559.
  4. Carlsson, H. & van Damme, E.E.C., 1989. "Global payoff uncertainty and risk dominance," Discussion Paper 1989-33, Tilburg University, Center for Economic Research.
  5. Chamley, Christophe & Gale, Douglas, 1994. "Information Revelation and Strategic Delay in a Model of Investment," Econometrica, Econometric Society, vol. 62(5), pages 1065-85, September.
  6. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 869-905.
  7. Vives, X., 1992. "The Speed of Information Revelation in a Financial Market Mechanism," UFAE and IAE Working Papers 174.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  8. Gale, D., 1992. "Dynamic Coordiantion Games," Papers 13, Boston University - Department of Economics.
  9. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
  10. Blume, Lawrence & Easley, David & O'Hara, Maureen, 1994. " Market Statistics and Technical Analysis: The Role of Volume," Journal of Finance, American Finance Association, vol. 49(1), pages 153-81, March.
  11. Hellwig, Martin F., 1982. "Rational expectations equilibrium with conditioning on past prices: A mean-variance example," Journal of Economic Theory, Elsevier, vol. 26(2), pages 279-312, April.
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