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Currency attack/defense with two-sided private information

Author

Listed:
  • Yuk-shing CHENG
  • Chi-shing CHAN
  • Chor-yiu SIN

Abstract

A currency attack fails on its own when the speculator suffers from her financial problem. This paper extends the existing models and argues that the monetary authority?s willingness to peg and the speculator?s cost of attack are private information. Our model thus accounts for the duration of currency attack/defense, and more importantly, allows for failed attack. We employ an asymmetric war of attrition and gauge the time when the speculator stops attacking, or when the monetary authority de-pegs. Comparative static results throw light on the interest rate policy amidst the Exchange Rate Mechanism Crisis and the Asian Currency Crisis

Suggested Citation

  • Yuk-shing CHENG & Chi-shing CHAN & Chor-yiu SIN, 2004. "Currency attack/defense with two-sided private information," Econometric Society 2004 Far Eastern Meetings 395, Econometric Society.
  • Handle: RePEc:ecm:feam04:395
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric war of attrition; Credibility of policymakers; Failed speculative attack; Persistent effect; Two-sided private information;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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