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Expectations and Information in Second Generation Currency Crises Models

Author

Listed:
  • Sbracia, M.
  • Zaghini, A.

Abstract

We explore the role of expectations in second generation currency crisis models, proving that sudden shifts in speculators' beliefs can trigger currency devaluations, even without any sizable worsening in the fundamentals. In our incomplete information game, mean-preserving changes in speculators' expectations may drive agents to a unique equilibrium with a self-ful lling attack. In particular, our model supports the thesis that ,sincea suf ciently large increase in speculators' uncertainty over the fundamentals is likely to trigger a currency crisis.

Suggested Citation

  • Sbracia, M. & Zaghini, A., 2000. "Expectations and Information in Second Generation Currency Crises Models," Papers 391, Banca Italia - Servizio di Studi.
    • Handle: RePEc:fth:banita:391
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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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