Devaluation without common knowledge
In an economy with a fixed exchange rate regime that suffers a random adverse shock, we study the strategies of imperfectly and sequentially informed speculators that may trigger an endogenous devaluation before it occurs exogenously. The game played by the speculators has a unique symmetric Nash eq...
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| Format: | Working paper |
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University of Oxford
2006
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| _version_ | 1797090877470932992 |
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| author | Rochon, C |
| author_facet | Rochon, C |
| author_sort | Rochon, C |
| collection | OXFORD |
| description | In an economy with a fixed exchange rate regime that suffers a random adverse shock, we study the strategies of imperfectly and sequentially informed 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 in the set of all strategies with delay. Uncertainty about the extent to which the Central Bank is ready to defend the peg extends the ex ante mean delay between the exogenous shock and the devaluation. We determine endogenously the rate of devaluation. |
| first_indexed | 2024-03-07T03:25:01Z |
| format | Working paper |
| id | oxford-uuid:b8bf46a6-0a84-42a4-a197-90c413587020 |
| institution | University of Oxford |
| last_indexed | 2024-03-07T03:25:01Z |
| publishDate | 2006 |
| publisher | University of Oxford |
| record_format | dspace |
| spelling | oxford-uuid:b8bf46a6-0a84-42a4-a197-90c4135870202022-03-27T04:57:58ZDevaluation without common knowledgeWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:b8bf46a6-0a84-42a4-a197-90c413587020Symplectic ElementsBulk import via SwordUniversity of Oxford2006Rochon, CIn an economy with a fixed exchange rate regime that suffers a random adverse shock, we study the strategies of imperfectly and sequentially informed 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 in the set of all strategies with delay. Uncertainty about the extent to which the Central Bank is ready to defend the peg extends the ex ante mean delay between the exogenous shock and the devaluation. We determine endogenously the rate of devaluation. |
| spellingShingle | Rochon, C Devaluation without common knowledge |
| title | Devaluation without common knowledge |
| title_full | Devaluation without common knowledge |
| title_fullStr | Devaluation without common knowledge |
| title_full_unstemmed | Devaluation without common knowledge |
| title_short | Devaluation without common knowledge |
| title_sort | devaluation without common knowledge |
| work_keys_str_mv | AT rochonc devaluationwithoutcommonknowledge |