Self-Fulfilling Currency Crises: The Role of Interest Rates
نویسندگان
چکیده
We develop a model of currency crises, in which traders are heterogeneously informed, and interest rates are endogenously determined in a noisy rational expectations equilibrium. In our model, multiple equilibria result from distinct roles an interest rate plays in determining domestic asset market allocations and the devaluation outcome. Except for special cases, this finding is not affected by the introduction of noisy private signals. We conclude that the global games results on equilibrium uniqueness do not apply to market-based models of currency crises. (JEL D84, E43, F32)
منابع مشابه
Government guarantees and self-fulfilling speculative attacks
This paper explores the role played by government guarantees to banks’ foreign creditors as a root cause of self-fulfilling twin banking-currency crises. We develop a general equilibrium model in which such guarantees lead to these types of crises. Absent government guarantees, such crises are not possible. The model has three key properties. First, in the presence of government guarantees bank...
متن کاملRisk and Wealth in a Model of Self-fulfilling Currency Attacks
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 inves...
متن کاملToward a Lender of First Resort; Daniel Cohen and Richard Portes; IMF Working Paper 06/66; March 1, 2006
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. If interest rates (country spreads) rise, debt can rapidly be...
متن کاملDynamics of currency crises with asset market frictions
We present a dynamic model of self-fulfilling currency crises with asset market frictions. Agents’ actions are not necessarily strategic complements, but we show the existence of a unique threshold equilibrium. Asset market frictions have important indirect effects. Contrary to a non-friction environment, large currency depreciations may occur and an attack that would quickly force the governme...
متن کاملSimultaneous Occurrence of Banking Debt and Currency Crises (Triple Crises) in Iranian Economy and Its Determining Factors During the Period 1980-2017
In monetary and financial literature, financial crises include a wide range of crises. But in general, there are three important types of financial crisis, including the currency crisis. The banking crisis and the debt crisis. The aim of this study is to simultaneously analyze the occurrence of banking, debt and currency crises, known as the three crises in Iran. For this purpose, first to dete...
متن کامل