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Private and public information in self-fulfilling currency crises

Author

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  • Metz, Christina E.

Abstract

This paper analyzes the implications of currency crises in a model with unique equilibrium. Starting from a typical multiple equilibria model with self-fulfilling expectations we introduce noisy information, following Morris/Shin (1999). Under certain conditions for the noise parameter, all equilibria but one are eliminated so that we are able to derive comparative statics and subsequent policy devices. We can show that if the a priori expected fundamental state of the economy is good, there is an incentive for the government to disseminate very precise information. However, a high precision of public information increases the danger of an attack if ex-ante expected fundamentals are bad. Moreover, we find that the influence of private information's precision is exactly the reverse.

Suggested Citation

  • Metz, Christina E., 2000. "Private and public information in self-fulfilling currency crises," Research Notes 00-7, Deutsche Bank Research.
    • Handle: RePEc:zbw:dbrrns:007
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    Cited by:

    1. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
    2. Christian Hellwig, 2004. "Self-Fulfilling Currency Crises: The Role of Interest Rates (A.E.R., December 2006)," UCLA Economics Online Papers 338, UCLA Department of Economics.
    3. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    4. Gaëtan Le Quang, 2019. "Mind the Conversion Risk: a Theoretical Assessment of Contingent Convertible Bonds," EconomiX Working Papers 2019-5, University of Paris Nanterre, EconomiX.
    5. Christina E. Bannier, 2003. "Privacy or Publicity - Who Drives the Wheel?," Game Theory and Information 0309006, University Library of Munich, Germany.
    6. Louise Allsopp, 2003. "Speculative behaviour, debt default and contagion: A stylised framework of the Latin American Crisis 2001-2002," Reserve Bank of New Zealand Discussion Paper Series DP2003/10, Reserve Bank of New Zealand.
    7. Morris, Stephen & Shin, Hyun Song, 2004. "Coordination risk and the price of debt," European Economic Review, Elsevier, vol. 48(1), pages 133-153, February.
    8. Femminis, Gianluca, 2007. "Currency Attacks With Multiple Equilibria And Imperfect Information: The Role Of Wage-Setters," Macroeconomic Dynamics, Cambridge University Press, vol. 11(1), pages 79-112, February.
    9. Camille Cornand & Frank Heinemann, 2009. "Speculative Attacks with Multiple Sources of Public Information," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(1), pages 73-102, March.
    10. Lioudmila Savtchenko, 2010. "Foreign devaluation as a coordinating device of heterogeneous investors: A game‐theoretic analysis of financial contagion," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(2), pages 195-204, June.
    11. Gaëtan Le Quang, 2019. "Mind the Conversion Risk: a Theoretical Assessment of Contingent Convertible Bonds," Working Papers hal-04141886, HAL.
    12. Christina Bannier, 2003. "The Role of Information Disparity in the 1994/95 Mexican Peso," International Finance 0310001, University Library of Munich, Germany.
    13. Stephen Morris & Hyun Song Shin, 2001. "The CNBC Effect: Welfare Effects of Public Information," Cowles Foundation Discussion Papers 1312, Cowles Foundation for Research in Economics, Yale University.
    14. Prati, Alessandro & Sbracia, Massimo, 2010. "Uncertainty and currency crises: Evidence from survey data," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 668-681, September.
    15. Nam Kyu Kim, 2018. "Transparency and currency crises," Economics and Politics, Wiley Blackwell, vol. 30(3), pages 394-422, November.
    16. Szkup, Michal, 2020. "Multiplier effect and comparative statics in global games of regime change," Theoretical Economics, Econometric Society, vol. 15(2), May.
    17. Camille Cornand, 2006. "Speculative Attacks and Informational Structure: an Experimental Study," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 797-817, November.
    18. Lee, Kyounghun & Oh, Frederick Dongchuhl, 2021. "Public information and global games with strategic complements and substitutes," Economics Letters, Elsevier, vol. 199(C).
    19. Mark A. Carlson & Galina B. Hale, 2005. "Courage to Capital? A Model of the Effects of Rating Agencies on Sovereign Debt Role-over," Cowles Foundation Discussion Papers 1506, Cowles Foundation for Research in Economics, Yale University.
    20. Stephen Morris & Hyun Song Shin, 2003. "Heterogeneity and Uniqueness in Interaction Games," Cowles Foundation Discussion Papers 1402, Cowles Foundation for Research in Economics, Yale University.
    21. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    22. Aitor Erce-Domínguez, 2006. "Using standstills to manage sovereign debt crises," Working Papers 0636, Banco de España.
    23. Aleh Tsyvinski & Arijit Mukherji & Christian Hellwig, 2006. "Self-Fulfilling Currency Crises: The Role of Interest Rates," American Economic Review, American Economic Association, vol. 96(5), pages 1769-1787, December.

    More about this item

    Keywords

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    JEL classification:

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

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