Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks

Abstract

Abstract Speculative attacks are sometimes triggered without warning, and without any apparent change in the economic fundamentals. Commentators who have attempted to explain episodes of speculative crises have pointed to the selffulfilling nature of the belief in an imminent speculative attack. If speculators believe that a currency will come under attack, their actions in anticipation of this precipitate the crisis itself, while if they believe that a currency is not in danger of imminent attack, their inaction spares the currency from attack, thereby vindicating their initial beliefs.

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