IDEAS home Printed from
   My bibliography  Save this paper

Currency Speculation in a Game-Theoretic Model of International Reserves


  • Carlos J. Perez

    () (Universidad Carlos III de Madrid)

  • Manuel S. Santos

    () (Department of Economics, University of Miami)


This paper is concerned with the ability of speculation to gener- ate a currency crisis. We consider a game-theoretic setting between a unit mass of speculators and a government that holds foreign currency reserves. We analyze conditions under which the speculators may be able to force the government to devaluate the currency. Among these conditions, we analyze the role of heterogeneous beliefs, transaction costs, the level of international reserves, and the widening of cur- rency bands. The explicit consideration of international reserves in our model makes speculators’ actions to be strategic substitutes— rather than strategic complements. This is a main analytical depar- ture with respect to related global games of currency speculation not including reserve holdings (e.g., Morris and Shin, 1998). Our sim- ple framework with international reserves becomes suitable to review some long-standing policy issues.

Suggested Citation

  • Carlos J. Perez & Manuel S. Santos, 2011. "Currency Speculation in a Game-Theoretic Model of International Reserves," Working Papers 2011-2, University of Miami, Department of Economics.
  • Handle: RePEc:mia:wpaper:2011-2

    Download full text from publisher

    File URL:
    File Function: First version, 2011
    Download Restriction: no

    More about this item


    Currency speculation; international reserves; currency crises; global games; asymmetric information.;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mia:wpaper:2011-2. 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: (Christopher Parmeter). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.