CRIEFF Discussion Paper Number 0214

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Unique equilibrium in a currency crisis model with heterogenous agents

Gerald Pech

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Abstract


This paper extends the currency crisis model of Morris and Shin to the case where players not only hold heterogenous beliefs but also differ in a characteristic feature such as individual transaction costs. It shows that there is a unique aggregate cut off point where the government abandons the peg which is supported by a continuum of individual switching points in the signals. The range of individual intervention levels is wide unless the noise vanishes.    

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Key Words
global games, currency crisis
JEL Classifications
D82, F31

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Gerald Pech
University of St Andrews

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