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Risk and wealth in a model of self-fulfilling currency attacks

  • Guimaraes, Bernardo
  • Morris, Stephen

Market participants' risk attitudes, wealth and portfolio composition in°uence their positions in a pegged foreign currency and, therefore, may have important e®ects on the sustainability of currency pegs. We analyze such e®ects in a global game model of currency crises with continuous action choices, generating a rich set of theoretical comparative static predictions related to often discussed but rarely modelled accounts of the onset and timing of currency crises. The model can be solved in closed form and the methods could be used to study other economic issues in which coordination and risk aversion play important roles.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304-3932(07)00088-8
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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 54 (2007)
Issue (Month): 8 (November)
Pages: 2205-2230

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Handle: RePEc:eee:moneco:v:54:y:2007:i:8:p:2205-2230
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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  9. Giancarlo Corsetti & Amil Dasgupta & Stephen Morris & Hyun Song Shin, 2001. "Does one Soros make a difference?: a theory of currency crises with large and small traders," LSE Research Online Documents on Economics 25045, London School of Economics and Political Science, LSE Library.
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