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Speculative Attacks with Multiple Targets

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  • Junichi Fujimoto

    (Faculty of Economics, University of Tokyo)

Abstract

This paper examines a global games model of speculative attacks in which speculators can choose to attack any one of a number of targets. In the canonical global games model with a single target, it is well known that there exists a unique equilibrium that survives the iterative deletion of dominated strategies, characterized by the threshold values of the private signal and the fundamentals. This paper shows that with two targets, iterative deletion of dominated strategies yields a unique combination of threshold signal functions that are nondecreasing in the private signals of the other target's fundamentals, and threshold fundamentals functions that are increasing in the other target's fundamentals. The result is shown to extend to environments with any N symmetric targets. The key argument is to combine the iterative deletion procedure with the contraction mapping theorem. The paper then goes through a number of numerical examples and shows, among other results, that more accurate private signals have a decoupling effect on the outcomes of attack on different countries. Finally, this paper introduces public information and shows that the sufficient condition for unique equilibrium threshold functions is very similar to that for a unique equilibrium in the single-target model.

Suggested Citation

  • Junichi Fujimoto, 2011. "Speculative Attacks with Multiple Targets," CARF F-Series CARF-F-267, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  • Handle: RePEc:cfi:fseres:cf267
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    References listed on IDEAS

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    Cited by:

    1. Junichi Fujimoto, 2014. "Speculative attacks with multiple targets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 89-132, September.
    2. Dzsamila Vonnak, 2018. "Multidimensional global games and some applications," CERS-IE WORKING PAPERS 1803, Institute of Economics, Centre for Economic and Regional Studies.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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