Speculative Attacks and the Information Role of the Interest Rate
This paper models currency attacks as carried out by speculators who condition their actions on private signals about the state and on the market-clearing interest rate. Besides affecting speculators' payoffs, this interest rate also provides an endogenous public signal. For a plausible type of investment strategies, the dual role of the interest rate allows the model to explain abrupt and intense speculative attacks solely via economic fundamentals, without resorting to sunspot variables. This result underlies a novel policy implication: An official intervention in the foreign exchange market may reinforce a currency peg by influencing the precision of public information. (JEL: D82, D84, F31) (c) 2007 by the European Economic Association.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 5 (2007)
Issue (Month): 1 (03)
|Contact details of provider:|| Web page: http://www.mitpressjournals.org/jeea|
|Order Information:||Web: http://www.mitpressjournals.org/jeea|
When requesting a correction, please mention this item's handle: RePEc:tpr:jeurec:v:5:y:2007:i:1:p:1-36. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Pollock-Nelson)
If references are entirely missing, you can add them using this form.