Arbeitspapier
Robust predictions in global games with multiple equilibria: Defense policies against currency attacks
This paper studies defense policies in a global-game model of speculative currency attacks. Although the signaling role of policy interventions sustains multiple equilibria, a number of novel predictions emerge which are robust across all equilibria. (i) The central bank intervenes by raising domestic interest rates, or otherwise raising the cost of speculation, only when the value it assigns to defending the peg-its 'type'-is intermediate. (ii) Devaluation occurs only for low types. (iii) The set of types who intervene shrinks with the precision of market information. (iv) A unique equilibrium policy survives in the limit as the noise in market information vanishes, whereas the devaluation outcome remains indeterminate. (v) The payoff of the central bank is monotonic in its type. (vi) The option to intervene can be harmful only for sufficiently strong types; and when this happens, weak types are necessarily better off. While these predictions seem reasonable, none of them would have been possible in the common-knowledge version of the model. Combined, these results illustrate the broader methodological point of the paper: global games can retain significant selection power and deliver useful predictions even when the endogeneity of information sustains multiple equilibria.
- Language
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Englisch
- Bibliographic citation
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Series: Discussion Paper ; No. 1500
- Classification
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Wirtschaft
- Event
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Geistige Schöpfung
- (who)
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Angeletos, George-Marios
Hellwig, Christian
Pavan, Alessandro
- Event
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Veröffentlichung
- (who)
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Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
- (where)
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Evanston, IL
- (when)
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2008
- Handle
- Last update
- 10.03.2025, 10:44 AM UTC
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Angeletos, George-Marios
- Hellwig, Christian
- Pavan, Alessandro
- Northwestern University, Kellogg School of Management, Center for Mathematical Studies in Economics and Management Science
Time of origin
- 2008
Other Objects (12)
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Expectations and contagion in self-fulfilling currency attacks
Complex networks after centrality-based attacks and defense
SMS-based One-Time Passwords: Attacks and Defense
Explaining predictions and attacks in federated learning via random forests
Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?
Does Transparency of Central Banks produce Multiple Equilibria on Currency Markets?
Adaptive unified defense framework for tackling adversarial audio attacks
Selection-free predictions in global games with endogenous information and multiple equilibria
Defense policies against currency attacks: on the possibility of predictions in a global game with multiple equilibria
Determining global currency bloc equilibria
Hybrid Attacks Demand Comprehensive Defense
Devaluation expectations and speculative attacks on the currency
Expectations and contagion in self-fulfilling currency attacks
Complex networks after centrality-based attacks and defense
SMS-based One-Time Passwords: Attacks and Defense
Explaining predictions and attacks in federated learning via random forests
Does Transparency of Central Banks Produce Multiple Equilibria on Currency Markets?
Does Transparency of Central Banks produce Multiple Equilibria on Currency Markets?
Adaptive unified defense framework for tackling adversarial audio attacks