Self-fulfilling currency attacks with biased signals

Cheli, Bruno; Posta, Pompeo Della

doi:10.1016/j.jpolmod.2007.01.003

Cited by 11 publications

(6 citation statements)

References 7 publications

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“…Cheli and Della-Posta (2002) study a coordination game where individuals' signals are exogenously biased. By contrast, this paper studies an equilibrium problem where the amount of bias introduced by the regime has to be compatible with rational beliefs on the part of information receivers.3 The underlying coordination game employed in this paper has been used for many applications, including currency and debt crises, bank runs, and political unrest.…”

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confidence: 99%

Information Manipulation, Coordination, and Regime Change*

Edmond

2013

The Review of Economic Studies

315

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This paper studies endogenous information manipulation in games where a population can overthrow a regime if individuals coordinate. The benchmark game has a unique equilibrium and in this equilibrium propaganda is effective if signals are sufficiently precise. Despite playing against perfectly rational individuals, a regime is able to manipulate information in a way that exploits heterogeneity in individual beliefs so that at equilibrium its chances of surviving are higher than they otherwise would be. This result is robust to alternative payoffs where the regime cares only for survival and to a number of alternative information structures, including situations where individuals have access to high-quality private information that is entirely uncontaminated by the regime.Keywords: global games, hidden actions, signal-jamming, propaganda, bias.JEL classifications: C72, D82, D84.In coordination games, the information available to agents is a crucial determinant of equilibrium outcomes. Typically, the truthfulness of that information is never in question. But when some players choose what information to release, that information is likely to be biased.1 The optimal amount of bias used by senders of information will depend on the way that receivers typically filter their information. In many settings, receivers find it easy to infer bias from their signals and information manipulation has no effect on equilibrium beliefs. In a coordination setting, however, the way that an individual receiver filters information will also depend on the filtering behavior of others. In equilibrium, senders may be able to manipulate information so as to exploit heterogeneity in receivers' beliefs and thereby affect outcomes. * This is an extensively revised version of a chapter from my UCLA dissertation. Previous versions of this paper circulated under the title 'Information and the limits to autocracy'.

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Information Manipulation, Coordination, and Regime Change*

Edmond

2013

The Review of Economic Studies

315

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“…CHELI ANDDELLA POSTA [2001] analyze the effect of biased information if the public cannot detect the bias.…”

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confidence: 99%

Optimal Transparency and Risk-Taking to Avoid Currency Crises

Bannier¹,

Heinemann²

2005

JITE

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This paper reconsiders a central bank's problem of determining rules for information dissemination and risk-taking behavior that minimize the probability of currency crises. In a global-games approach, we find that optimal transparency is adversely related to prior market beliefs. In countries with pessimistic prior beliefs about economic performance, the central bank should commit to disclosing information with maximal precision. In addition, it should increase the risk of economic performance. For good prior expectations, posterior information should be of lower precision, depending on the variance of fundamentals. Here, the central bank can reduce the crisis probability by reducing that variance. (JEL: D 82, F 31, G 33) * We would like to thank Hyun Song Shin, Xavier Vives, and an anonymous referee for helpful comments. All remaining errors are our responsibility.

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“…In second-generation models, a central bank has its own objective function and minimizes the loss function (Obstfeld 1996). This type of model incorporates the strategic interaction between a central bank and international investors and exhibits a self-fulfilling prophecy (Cheli and Posta 2007). In second-generation models, an expectational shock, such as a shift in investors' expectations, which can be captured as 8 a risk premium shock, triggers the currency crisis.…”

Section: Literature Reviewmentioning

confidence: 99%

Real and financial shocks, exchange rate regimes and the probability of a currency crisis

Nakatani

2018

Journal of Policy Modeling

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We analyze the relationships among shocks, exchange rate regimes, and capital controls in relation to the probabilities of currency crises. Based on the theoretical model by Nakatani (2016Nakatani ( , 2017a, we use panel data on 34 developing countries and apply a probit estimation. We find that both productivity shocks and country risk premium shocks trigger currency crises, whereas productivity shocks are important for severe currency crises. We also find that the effects of these shocks on the probability of a crisis are larger for floating exchange rate regimes and that capital controls mitigate the effects of productivity shocks in pegged regimes.

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Self-fulfilling currency attacks with biased signals

Cited by 11 publications

References 7 publications

Information Manipulation, Coordination, and Regime Change*

Information Manipulation, Coordination, and Regime Change*

Optimal Transparency and Risk-Taking to Avoid Currency Crises

Real and financial shocks, exchange rate regimes and the probability of a currency crisis

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