Dynamic Speculative Attacks
- (pp. 603-621)
AbstractThis paper presents a model of rational Bayesian agents with speculative attacks in a regime of exchange rate which is pegged within a band. Speculators learn from the observation of the exchange rate within the band whether their mass is sufficiently large for a successful attack. Multiple periods are necessary for the existence of speculative attacks. Various defense policies are analyzed. A trading policy by the central bank may defend the peg if it is unobserved and diminishes the market's information for the coordination of speculators.
CitationChamley, Christophe. 2003. "Dynamic Speculative Attacks ." American Economic Review, 93 (3): 603-621. DOI: 10.1257/000282803322157007
- F31 Foreign Exchange
- G15 International Financial Markets