Abstract
Market participants' risk attitudes, wealth and portfolio composition influence their positions in a pegged foreign currency and, therefore, may have important effects on the sustainability of currency pegs. This paper analyzes such effects in a global game model of currency crises with continuous action choices, generating a rich set of theoretical comparative static predictions related to often discussed but rarely modelled accounts of currency attacks. The model can be solved in closed form and the methods could be used to study other economic issues in which coordination and risk aversion play important roles.
Original language | English (US) |
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Pages (from-to) | 2205-2230 |
Number of pages | 26 |
Journal | Journal of Monetary Economics |
Volume | 54 |
Issue number | 8 |
DOIs | |
State | Published - Nov 2007 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
Keywords
- Currency crises
- Global games
- Portfolio
- Risk aversion
- Wealth