With a four-stage sequential game model, we study how bailouts ameliorate the effects of liquidation on fundamentals, reduce the likelihood of currency crises and affect the financial sector's (non-observable) effort. In stage 1, exchange rate regime is announced and all agents receive...

With a four-stage sequential game model, we study how bailouts ameliorate the effects of liquidation on fundamentals, reduce the likelihood of currency crises and affect the financial sector's (non-observable) effort. In stage 1, exchange rate regime is announced and all agents receive...

We model the exchange rate market for a country that initially follows a band policy, as a four-stage sequential game of complete information, where a stochastic shock is realized in the last stage. Given a fixed cost of leaving the band, we show that three types of equilibria may exist,...

With a four-stage sequential game model, we analyse two bailout policies, one when the government commits ex-ante and another, in which it does not, both to an optimal bailout. We study if each of these policies ameliorate the effects of liquidation on fundamentals, reduce the likelihood of...