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Learning and complementarities in speculative attacks

Yuan, Kathy (2011) Learning and complementarities in speculative attacks. Review of Economic Studies, 78 (1). pp. 263-292. ISSN 0034-6527

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Identification Number: 10.1093/restud/rdq017

Abstract

We study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision. We show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing non-fundamental volatility into exchange rates and policy decisions. We show that the central bank can improve the ex ante effectiveness of its policy by committing to put a lower weight ex post on the information from the market, and that transparency may either increase or decrease the effectiveness of learning from the market, depending on how it is implemented.

Item Type: Article
Official URL: http://www.restud.com/
Additional Information: © 2001 The Author
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Date Deposited: 06 Apr 2011 12:52
Last Modified: 12 Jul 2011 15:56
URI: http://eprints.lse.ac.uk/id/eprint/33670

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