Private and Public Information in Self-Fulfilling Currency Crises

Christina Bannier

International Finance from EconWPA

Abstract: This paper analyses the implications of information dissemination on currency crises in models with self-fulfilling expectations. Following Morris/Shin (1999, 2000), we introduce noisy private and public information, so that under certain conditions for the noise parameters a unique equilibrium is derived. Comparative statics then show that if the fundamental state of the economy is good, the probability of a currency crisis decreases in the precision of public information, but increases in the precision of private information. In case of bad fundamentals, however, more precise public information increases the likelihood of a crisis, whereas more precise private information leads to a lower crisis probability.

Keywords: currency crises; self-fulfilling expectations; private and public information; multiple equilibria (search for similar items in EconPapers)
JEL-codes: F31 D82 (search for similar items in EconPapers)
Date: 2003-09-25
Note: Type of Document - Tex/WordPerfect/Handwritten; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 345,395,4323247 ; figures: included/request from author/draw your own
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpif:0309006

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