NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Arijit Mukherji

Institutional Affiliation: University of Minesota
Deceased

NBER Working Papers and Publications

March 2005Self-Fulfilling Currency Crises: The Role of Interest Rates
with Christian Hellwig, Aleh Tsyvinski: w11191
We develop a stylized currency crises model with heterogeneous information among investors and endogenous determination of interest rates in a noisy rational expectations equilibrium. Our model captures three key features of interest rates: the opportunity cost of attacking the currency responds to the investors' behavior; the domestic interest rate may influence the central bank's preferences for a fixed exchange rate; and the domestic interest rate serves as a public signal which aggregates private information about fundamentals. We explore the payoff and informational channels through which interest rates determine devaluation outcomes, and examine the implications for equilibrium selection by global games methods. Our main conclusion is that multiplicity is not an artifact of common kn...

Published: Christian Hellwig & Arijit Mukherji & Aleh Tsyvinski, 2006. "Self-Fulfilling Currency Crises: The Role of Interest Rates," American Economic Review, American Economic Association, vol. 96(5), pages 1769-1787, December. citation courtesy of

 
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