Thalia

As the complexity of financial markets keeps growing, so does the need to understand the decision-making and the coordination of the exsuing actions in the marketplace. In particular, the disclosure of information to market participants and its impact on the market outcome mertis attention. This study analyses the role of private and public information in currency crises. Calls for increased dissemination of economic and policy-related information by central banks notwithstanding, the study shows that transparency is not generally conductive to preventing speculative attacks in fixed exchange-rate regimes. Rather, the role of private and public information in the market-place depencs critically on the prevailing market sentiment. The study also highlights the import of market transparency design in an environment that allows for herding and market leadership of individual speculators. TOC:Introduction.- The Classical Currency Crisis Models: First-Generation Model - Krugman (1979); Second-Generation Model - Obstfeld (1994); Self-Fulfilling Currency Crisis Model with Unique Equilibrium - Morris and Shin (1998): Introduction; Game-Theoretic Preliminaries; Solving Currency Crisis Models in Global Games - The Morris/Shin-Model (1998); Transparency and Expectation Formation in the Basic Morris/Shin-Model (1998); The Influence of Private and Public Information in Self-Fulfilling Currency Crisis Models: Introduction; Characterization of Private and Public Information; The Currency Crisis Model with Private and Public Information; Optimal Information Policy - Endogenizing Information Precision; Informational Aspects of Speculator's Size and Dynamics: Introduction; Currency Crisis Models with Small and Large Traders; Informational Cascades and Herds - Aspects of Dynamics and Time; Testing the Theoretical Results: Introduction; Experimental Evidence; Empirical Evidence; Concluding Thoughts: References.