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dc.contributor.authorMundaca, B. Gabrielaen_US
dc.contributor.authorStrand, Jonen_US
dc.description.abstractWe 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, corresponding to different expectations by the public about the government retaining the band, (1) in all future states, (2) only in some future states, and (3) in none of the states. In case (2) a speculative attack occurs but is countered when the cost of countering it is not too high, leading to adverse shifts in fundamentals. We study the government’s incentives to abandon or retain the band, and to abandon the band preemptively before public expectations are revealed. The standard Krugman and Obstfeld models are obtained as special cases, respectively when we have regime collapse as a unique equilibrium, and when there are multiple equilibria and the game always progresses to stage 4.en_US
dc.publisherDep. of Economics, Univ. of Oslo Osloen_US
dc.relation.ispartofseriesMemorandum, Department of Economics, University of Oslo 1999,01en_US
dc.subject.keywordCurrency crisisen_US
dc.subject.keywordmultiple equilibriaen_US
dc.subject.keywordsequential gamesen_US
dc.titleSpeculative attacks in the exchange market with a band policy: A sequential game analysisen_US
dc.typeWorking Paperen_US
Appears in Collections:Memorandum, Department of Economics, University of Oslo

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