Since a fixed exchange rate regime is a fixed price system, there is no theoretical reason to presume that the foreign exchange market clears, particularly during a speculative attack. This paper shows that equilibria where we allow for the possibility of such corner solutions are a superset of...

This paper analyzes devaluations in a fixed exchange rate system by endogenizing both the speculation and devaluation decisions. It is shown that deterministic devaluation rules are generally sub-optimal for the central bank. In order to deter speculation the central bank introduces uncertainty...

This paper investigates the extent to which it is possible for speculative attacks to be predictable given information on economic fundamentals. A standard model of predictable attacks is extended to incorporate an optimizing monetary authority. It is shown that while incorporating a...

This Paper demonstrates that the implications of first-generation speculative attack models do not hold if there is a rational, forward-looking policy maker. The policy maker will be able to avoid predictable speculative attacks by introducing uncertainty into the decisions of speculators. This...