Risk and wealth in a model of self-fulfilling currency attacks

Bernardo Guimaraes, Stephen Morris

Research output: Contribution to journalArticle

31 Scopus citations

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 languageEnglish (US)
Pages (from-to)2205-2230
Number of pages26
JournalJournal of Monetary Economics
Volume54
Issue number8
DOIs
StatePublished - Nov 2007

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Keywords

  • Currency crises
  • Global games
  • Portfolio
  • Risk aversion
  • Wealth

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