Learning, Large Deviations, and Recurrent Currency Crises.
This article studies a version of Obstfeld's (Journal of International Economics 43 (1997), 61-77) “escape clause” model. The model is calibrated to produce three rational expectations equilibria. Two of these equilibria are E-stable and one is unstable. Dynamics are introduced by assuming that agen...
| Publicado en: | International Economic Review Vol. 45; no. 1; pp. 141 - 174 |
|---|---|
| Autor principal: | |
| Formato: | Artículo |
| Publicado: |
Wiley-Blackwell
February 2004
|
| Materias: | |
| Acceso en línea: | Ver este registro en EBSCOhost |
| fields | @attributes: recordID: 1 pdfLink: plink: https://search.ebscohost.com/login.aspx?direct=true&db=ssf&AN=513166012&site=ehost-live header: @attributes: shortDbName: ssf uiTerm: 513166012 longDbName: Social Sciences Full Text (H.W. Wilson) uiTag: AN controlInfo: bkinfo: jinfo: jid: 00206598 IER jtl: International Economic Review issn: 00206598 maglogo: N pubinfo: dt: February 2004 vid: 45 iid: 1 pid: 480 pub: Wiley-Blackwell artinfo: ui: 513166012 10.1111/j.1468-2354.2004.00120.x ppf: 141 ppct: 33 formats: tig: atl: Learning, Large Deviations, and Recurrent Currency Crises. aug: au: Kasa, Kenneth su: Large deviations (Mathematics) Psychology of learning Mathematical models Foreign exchange Financial crises sug: subj: Large deviations (Mathematics) Psychology of learning Mathematical models Foreign exchange Financial crises ab: This article studies a version of Obstfeld's (Journal of International Economics 43 (1997), 61-77) “escape clause” model. The model is calibrated to produce three rational expectations equilibria. Two of these equilibria are E-stable and one is unstable. Dynamics are introduced by assuming that agents must learn about the government's decision rule. It is assumed they do this using a stochastic approximation algorithm. It turns out that as a certain parameter describing the sensitivity of beliefs to new information gets small, the algorithm converges to a small noise diffusion process. The dynamics of exchange rate changes are then characterized using large deviation techniques from Freidlin and Wentzell (Random Perturbations of Dynamical Systems, Second Edition, Berlin: Springer-Verlag, 1998). These methods describe the sense in which the limiting distribution of exchange rate changes is approximated by a two-state Markov-Switching process, where the two states correspond to the two E-stable equilibria. The model is calibrated to the exchange rate histories of Argentina, Brazil, and Mexico. Currency crises in these countries resemble the predicted “escape routes” of the model. A key feature of these escape routes is that expectations of a devaluation erupt suddenly, without large contemporaneous shocks. This is consistent with evidence showing that crises are often poorly anticipated by financial markets. Reprinted by permission of the publisher. pubtype: Academic Journal doctype: Article src: R language: English refInfo: copyright: @attributes: flag: N holdings: @attributes: islocal: N |
|---|