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Exchange-rate Attack as a Coordination Game: Theory and Experimental Evidence

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  • Frank Heinemann

Abstract

This paper compares theoretical predictions for a coordination game, used to explain the onset of a currency crisis, with observations from laboratory experiments. Theories that assume full rationality suggest that public information may destabilize an economy by creating self-fulfilling belief equilibria, while private information leads to a unique equilibrium. In experiments, differences in behaviour for these two kinds of information are small. Public information increases efficiency and coordination among players, and there is no evidence for destabilizing effects owing to self-fulfilling beliefs. Copyright 2002, Oxford University Press.

Suggested Citation

  • Frank Heinemann, 2002. "Exchange-rate Attack as a Coordination Game: Theory and Experimental Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 18(4), pages 462-478.
  • Handle: RePEc:oup:oxford:v:18:y:2002:i:4:p:462-478
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    Cited by:

    1. Camille Cornand, 2006. "Speculative Attacks and Informational Structure: an Experimental Study," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 797-817, November.
    2. Jean-Pierre Allegret & Camille Cornand, 2006. "The pros and cons of higher transparency: the case of speculative attacks," Recherches économiques de Louvain, De Boeck Université, vol. 72(3), pages 215-246.
    3. Bannier, Christina E., 2003. "Privacy or Publicity - Who Drives the Wheel?," CFS Working Paper Series 2003/29, Center for Financial Studies (CFS).
    4. Ralf Elsas & Frank Heinemann & Marcel Tyrell, 2004. "Multiple but Asymmetric Bank Financing: The Case of Relationship Lending," CESifo Working Paper Series 1251, CESifo Group Munich.
    5. Christina E. Bannier, 2003. "Privacy or Publicity - Who Drives the Wheel?," Game Theory and Information 0309006, University Library of Munich, Germany.
    6. Childs, Jason, 2009. "Rate of return parity and currency crises in experimental asset markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 157-170, February.

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