Citation

Discussion Paper Details

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Full Details

Title: Unique Equilibrium in a Model of Self-fulfilling Currency Attacks

Author(s): Stephen Morris and Hyun Song Shin

Publication Date: August 1997

Keyword(s): Common Knowledge and Currency Crisis

Programme Area(s): Financial Economics

Abstract: Even though self-fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge, we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise on their signals about the fundamentals. This unique equilibrium depends not only on the fundamentals, but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading. In contrast to multiple equilibrium models, our model allows analysis of policy proposals directed at curtailing currency attacks.

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Bibliographic Reference

Morris, S and Shin, H. 1997. 'Unique Equilibrium in a Model of Self-fulfilling Currency Attacks'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1687