Publication Date: September 2003
Revision Date: November 2004
Market participants’ risk attitudes, wealth and portfolio composition influence their positions in a pegged foreign currency and, therefore, may have important eﬀects on the sustainability of currency pegs. We analyze such eﬀects in a global game model of currency crises with continuous action choices. The model, solved in closed form, generates a rich set of theoretical predictions consistent with many popular and academic (unmodelled) speculations about the onset and timing of currency crises. The results extend linearly to a heterogeneous agent population.
Currency crisis, global games, risk aversion, wealth, portfolio
JEL Classification Codes: F3, D8
Published in Journal of Monetary Economics (November 2007), 54(8): 2205-2230 [DOI]