Unique Equilibrium in a Model of Self-fulfilling Currency Attacks

Stephen Morris and Hyun Song Shin

No 1687, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Even though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge, we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise on their signals about the fundamentals. This unique equilibrium depends not only on the fundamentals, but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading. In contrast to multiple equilibrium models, our model allows analysis of policy proposals directed at curtailing currency attacks.

Keywords: Common Knowledge; Currency Crisis (search for similar items in EconPapers)
JEL-codes: D82 F31 (search for similar items in EconPapers)
Date: 1997-08
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Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks (1998)
Working Paper: Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks (1996)
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