Risk and Wealth in a Model of Self-Fulfilling Currency Attacks

Stephen Morris and Bernardo Guimaraes

Yale School of Management Working Papers from Yale School of Management

Abstract: We analyze the effect of risk aversion, wealth and portfolios on the behavior of investors in a global game model of currency crises with continuous action choices. The model generates a rich set of striking theoretical predictions. For example, risk aversion makes currency crises significantly less likely; increased wealth makes crises more likely; and foreign direct investment (illiquid investments in the target currency) make crises more likely. Our results extend linearly to a heterogeneous agent population.

Keywords: Currency crisis; sunspots; global games; risk aversion; wealth; portfolio (search for similar items in EconPapers)
JEL-codes: D8 F3 (search for similar items in EconPapers)
Date: 2004-07-28
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Risk and wealth in a model of self-fulfilling currency attacks (2007)
Working Paper: Risk and Wealth in a Model of Self-Fulfilling Currency Attacks (2006)
Working Paper: Risk and Wealth in a Model of Self-Fulfilling Currency Attacks (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:somwrk:ysm424

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