While virtually all modern models of exchange rate crises recognise that the decision to abandon an exchange rate peg depends on how harshly policy makers are willing to defend the regime, they virtually never model how the exchange rate is defended. In this paper we incorporate both the...

While virtually all modern currency crisis models recognise that the decision to abandon an exchange rate peg depends on how tenaciously policy makers are willing to defend it, they seldom model how this is done. We incorporate both the mechanics of speculation and of a defence policy against...

While virtually all currency crisismodels recognise that the fate of a currency peg depends on how tenaciously policy makers defend it, they seldom model how this is done. We incorporate themechanics of speculation and the interest rate defence against it in the model ofMorris and Shin (American...

Since a fixed exchange rate regime is a fixed price system, there is no theoretical reason to presume that the foreign exchange market clears, particularly during a speculative attack. This paper shows that equilibria where we allow for the possibility of such corner solutions are a superset of...

The main objective of this paper is to investigate the diversification role of currency momentum for carry trade crashes during the turbulent periods surrounding the 1997-1998 Asian financial crisis and the 2007-2008 global financial crisis. The motivation is to use an important tendency of...

The study employs the Markovian processs on annual nominal effective exchange rate of CFA Franc spanning 1975 to 2017 to examine whether the CFA franc is prone to speculative attacks or a contagion effect. The findings reveal that the expected duration for the CFA Franc to be undervalued is...

Confronted with a speculative attack on its currency peg, an authority weighs the short-term benefit of giving in and fine tuning the economy against the long-term benefit of credibility-enhancing resistance. In turn, speculators with heterogeneous beliefs face strategic uncertainty that peaks...

Currency and financial turmoils in international capital markets have been the focus of an extensive theoretical research which started around 30 years ago. This paper provides a synthetic overview of this theoretical modeling. We analyze the basic analytical framework corresponding to the...

This paper examines the ability of a policy maker to fashion equilibrium outcomes in an environment where market participants play a coordination game with heterogeneous information. We consider a simple model of regime change that embeds many applications examined in the literature. In...