These notes consider Abreu and Brunnermeier’s (2003) paper on the failure of rational arbitrage in asset markets. Recall that the “no-trade” theorem states that speculative bubbles cannot exist in a world with only rational traders even if there is asymmetric information, so long as these traders share a common prior. Believers in the efficient market hypothesis argue that even if there are als...

Global games with endogenous information often exhibit multiple equilibria. In this paper, we show how one can nevertheless identify useful predictions that are robust across all equilibria and that cannot be delivered in the commonknowledge counterparts of these games. Our analysis is conducted within a flexible family of games of regime change, which have been used to model, inter alia, specu...

Ubiquitous computing is resulting in a proliferation of cyber-physical systems that host or manage valuable physical and digital assets. These assets can be harmed by malicious agents through both cyber-enabled or physically-enabled attacks, particularly ones that exploit the often ignored interplay between the cyber and physical world. The explicit representation of spatial topology is key to ...

Global games with endogenous information often exhibit multiple equilibria. In this paper we show how one can nevertheless identify useful predictions that are robust across all equilibria and that could not have been delivered in the common-knowledge counterparts of these games. Our analysis is conducted within a flexible family of games of regime change, which have been used to model, inter a...

Do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets? To address this issue, we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals. Even abstracting from signalling, the presence of the...

List of the last 10 Memoranda: No 26 by Steinar Holden and Karl Ove Moene: Measures to improve Wage Formation in Sweden. 28 p. Speculative attacks in the exchange market with a band policy: A sequential game analysis. 45 p. In the framework of ethical social choice theory, sustainability is justified by Efficiency and Equity as ethical axioms. These axioms correspond to the Suppes-Sen Grading p...

We study financial fragility, exchange rate crises, and monetary policy in an open economy version of a Diamond-Dybvig model. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails, banking crises and speculative attacks become possible. We compare currency boards, fixed rates, and...

This paper examines the ability of a policy maker to control equilibrium outcomes in an environment where market participants play a coordination game with information heterogeneity. We consider defense policies against speculative currency attacks in a model where speculators observe the fundamentals with idiosyncratic noise. The policy maker is willing to take a costly policy action only for ...