Exchange-rate Attack as a Coordination Game: Theory and Experimental Evidence

Frank Heinemann

Oxford Review of Economic Policy, 2002, vol. 18, issue 4, 462-478

Abstract: This paper compares theoretical predictions for a coordination game, used to explain the onset of a currency crisis, with observations from laboratory experiments. Theories that assume full rationality suggest that public information may destabilize an economy by creating self-fulfilling belief equilibria, while private information leads to a unique equilibrium. In experiments, differences in behaviour for these two kinds of information are small. Public information increases efficiency and coordination among players, and there is no evidence for destabilizing effects owing to self-fulfilling beliefs. Copyright 2002, Oxford University Press.

Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:oup:oxford:v:18:y:2002:i:4:p:462-478

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