Introduction

Abstract

Analyzing currency crisis models in a global games setting allows to take into account the influence of different parameters on speculators’ actions. As such, it is possible to give policy advice to the government or central bank on how to possibly prevent the occurrence of currency crises in the future. In this respect, one of the most urgent questions to be answered refers to the optimal use of information. The importance of informational aspects in currency crises arises from two facts: first, the currency crises of the past, most notably in Europe 1992-93 and Mexico 1994-95, quite strongly demonstrated the impact of information on triggering an attack. In particular for Mexico 1994, numerous economists argued that the obvious withholding of information on the part of the government increased fundamental uncertainty among the market participants and finally caused the major attack on the fixed Peso exchange rate in December 1994. Secondly, disseminating information about the fundamental state of the economy is a quite exclusive policy instrument for the central bank or government. Hence, by using this instrument sensibly, the political authorities should be able to stabilize the market in times of financial turmoil. However, analyzing optimal informational policy measurements has not yet received the appropriate attention among economists. Although the importance of information has often been commented on (Friedman, 1979; Hirshleifer and Riley, 1992; Lawrence, 1999), a surprisingly small number of papers has yet tried to analyze exactly why and in which way information influences speculators’ behavior. The current part of the book therefore presents own research on the influence of information disclosure and of different types of information on the event of a currency crisis (Metz, 2002a).