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

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  • Guimaraes, Bernardo
  • Morris, Stephen

Abstract

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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  • Guimaraes, Bernardo & Morris, Stephen, 2007. "Risk and wealth in a model of self-fulfilling currency attacks," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2205-2230, November.
    • Handle: RePEc:eee:moneco:v:54:y:2007:i:8:p:2205-2230
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    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • F3 - International Economics - - International Finance

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