Devaluation without common knowledge
نویسنده
چکیده
In an economy with a fixed exchange rate regime that suffers an adverse shock, we study the delay strategies of speculators that may trigger an endogenous devaluation before it occurs exogenously. The game played by the speculators has a unique symmetric Nash equilibrium which is a strongly rational expectation equilibrium. A higher uncertainty about the initial level of reserves of the Central Bank increases the delay and extends the ex ante mean delay between the exogenous shock and the devaluation. We determine endogenously the rate of devaluation, bringing together the first and second generation models of currency crises.
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