With a four-stage sequential game model, we study how bailouts ameliorate the effects of liquidation on fundamentals, reduce the likelihood of currency crises and affect the financial sector's (non-observable) effort. In stage 1, exchange rate regime is announced and all agents receive...

The aim is to show how and when government insolvency implies a fixed exchange rate regime crisis. To model these issues I try to unify a stylized macroeconomic model with a standard micro agent behavior toward asset pricing. The equilibrium condition between demand and supply of public debt,...

Based on a framework originally developed by Morris and Shin (1995), this model shows how a currency crisis may be triggered by a lack of common knowledge regarding government type. Speculators receive noisy differential information concerning the value a government places on maintaining an...

We extended the Cole and Kehoe model (1996) by adding trade and debt denominated in national currency. We then evaluated some external debt defaults and steep national currency devaluations occurred during last decades. Although default is unlikely, steep devaluation has been repeatedly...

Currency and financial turmoils in international capital markets have been the focus of an extensive theoretical research which started around 30 years ago. This paper provides a synthetic overview of this theoretical modeling. We analyze the basic analytical framework corresponding to the...