On Nash Equilibria in Speculative Attack Models

Ivan Pastine

No 201613, Working Papers from School of Economics, University College Dublin

Abstract: Since a fixed exchange rate regime is a fixed price system, there is no theoretical reason to presume that the foreign exchange market clears, particularly during a speculative attack. This paper shows that equilibria where we allow for the possibility of such corner solutions are a superset of the previously examined “market-clearing” equilibria. The timing of the balance-of-payments crisis is no longer predictable in the same sense – multiple equilibria exist even in the very simplest speculative attack model.

Keywords: Balance-of-payments crises; Fixed exchange rate breakdown (search for similar items in EconPapers)
JEL-codes: E58 F31 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2016-09
New Economics Papers: this item is included in nep-hpe and nep-mon
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http://hdl.handle.net/10197/7925 First version, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:ucn:wpaper:201613

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