Risk and Wealth in a Model of Self-Fulfilling Currency Attacks

Market participants' risk attitudes, wealth and portfolio composition influence their positions in apegged foreign currency and, therefore, may have important effects on the sustainability of currencypegs. We analyze such effects in a global game model of currency crises with continuous actionchoices, generating a rich set of theoretical comparative static predictions related to often discussedbut rarely modelled accounts of the onset and timing of currency crises. The model can be solvedin closed form and the methods could be used to study other economic issues in which coordinationand risk aversion play important roles.[...]