بحران هماهنگی، همکاری، انتقال و ارز

We present a micro-founded model where governments have an incentive to devalue to increase the national market share in a monopolistically competitive sector. Currency crises generated by self-fulfilling expectations are possible because workers demand high wages when they expect a devaluation. This decreases the competitiveness and profits of national firms and induces the government to devalue. We show that the more important trade competition, the more likely self-fulfilling speculative crises and the larger the set of multiple equilibria. Coordination decreases the possibility of simultaneous self-fulfilling speculative crises in the region and reduces the set of multiple equilibria. However, regional coordination, even though welfare improving, makes countries more dependent on other countries’ fundamentals so that it may induce more contagion.

Recent currency crises, such as the 1992–1993 EMS crisis, the crash of the Mexican Peso in 1994 and its Tequila effect on other countries, as well as the Asian crisis, have involved several countries in the same geographical region. Most recently, the Asian crisis broke out in Thailand in May 1997, but spread rapidly to Malaysia, the Philippines, Indonesia and South Korea. In the European case, contagion was also important as the crisis hit five countries (Finland, the UK, Italy, Sweden and Norway) in its first year. By 1993 all countries except Netherlands had to widen the band of fluctuation with the DM. The attack on the peso was itself followed by attacks on several Latin American countries. Despite the fact that currency crises typically involve several countries that fix their currencies either to the dollar or to the DM, existing models of currency crisis look at the problem in a two country framework where the actions of the country that pegs its currency are key.1 This is the case of models of the ‘first generation’ type (Krugman, 1979), where the crisis comes with a run on the Central Bank’s reserves, because speculators understand that monetary authorities conduct a policy inconsistent with the fixed parity. This is also the case with ‘second generation’ models (Obstfeld, 1991), which consider devaluation as an intentional decision of a government, that weighs advantages and disadvantages: the cost of opting out of the fixed exchange rate system is primarily considered as a political cost; as for the cost of staying in, it can be modeled as high interest rates2 or as unemployment.3 As argued by Glick and Rose (1999), ‘from the perspective of most speculative attack models, it is hard to understand why currency crisis tend to be regional’. They argue that trade linkages should be first among the suspects for explaining regional contagion of currency crises and give strong empirical support to this channel using five different crises. Eichengreen et al. (1996), in an empirical study using 30 years of panel data from twenty industrialized countries, also conclude in favor of a stronger explanatory power of international trade linkages than of macroeconomic similarities. Even though not modeled explicitly by these authors, the role of trade linkages is that in the presence of price rigidities a devaluation brings a short term competitive advantage to the country that devalues and therefore increases the cost for trade partners not to devalue. The existence of these spillovers raises the issue of international cooperation: if governments take into account the negative externalities of devaluation on other countries, it might be easier to stop the snowball, perhaps even before it starts. Actually, some steps had been taken before the outbreak of the Asian crisis towards increased monetary cooperation between East Asian countries.4 As prophesied by Bayoumi and Eichengreen (1996), these unassuming measures however proved ‘insufficient to repel an all-out attack on an Asian currency comparable to the Mexican or ERM crises’. In this paper we analyze the role of trade linkages in currency crises. To do this, we present a three country model that builds on three separate literatures: (1) the literature on international monetary cooperation, especially Canzeroni and Henderson’s (1991) theoretical approach, (2) the literature on currency crises, or more precisely on the ‘escape clause’ approach of fixed exchange rate systems, (3) the micro-founded new open economy macroeconomics framework initiated by Obstfeld and Rogoff (1995) and reviewed by Lane (1998). Our model corresponds to a three-player, sequential game. The players involved are private agents and the two governments that unilaterally peg their currency to a third one. The two governments have an incentive to devalue because countries compete on an monopolistically competitive good that they both export. Currency crises that are generated by self-fulfilling expectations are possible because private agents rationally demand high wages when they expect a devaluation. This decreases the competitiveness of national firms and induces the government to devalue. To our knowledge, this framework is the first attempt to introduce micro-foundations in models of devaluations with self-fulfilling expectations. We show that even when in equilibrium devaluations do not give any short term competitive advantage, strong trade competition increases the likelihood of currency crises that are induced by self-fulfilling expectations and magnify regional instability by increasing the number of possible multiple equilibria. We also show that countries that export goods in monopolistic sectors are more prone to devaluation induced by self-fulfilling expectations than countries specialized in competitive sectors. We analyze the role of international coordination and cooperation in this context. Coordination is defined as in Canzeroni and Henderson (1991): governments coordinate on the best Nash equilibrium so that it does not require any commitment technology. Policy-makers do not give up sovereignty in this case and all that is required is that they meet and coordinate on a good non cooperative solution, for example in a regional forum. Because multiple equilibria due to self-fulfilling expectations are a natural outcome in this type of setup, the question of the feasibility of coordination on a specific equilibrium is a natural and important one. Cooperation is more demanding as it implies that governments maximize a joint welfare function. It therefore requires a commitment technology in the form of a supra-national institution that enforces the agreement. Both coordination and cooperation decrease but do not eliminate the possibility of simultaneous self-fulfilling speculative crises and reduce instability by limiting the set of multiple equilibria. However, regional coordination, even though welfare improving, makes countries more dependent on other countries’ fundamentals so that it may induce more contagion: if one country of the region is more likely to devalue because of a worsening of its fundamentals, this increases the possibility of a currency crisis in both countries because it reduces the credibility of coordination between the two countries. Our paper is related to Buiter et al., 1995 and Buiter et al., 1998 who analyze the beneficial role of cooperation in the context of exchange rate crises in Europe. It differs in several dimensions. First, our model is based on micro-foundations. Second, expectations of the private sector play no role in their analysis of international cooperation so that the currency crisis they obtain are not due to self-fulfilling expectations and multiple equilibria do not arise. Finally, because they do not allow for the possibility of multiple equilibria induced by self-fulfilling expectations, they do not analyze coordination but only look at the most demanding form of cooperation where governments minimize a joint loss function. Another related paper is Corsetti et al. (1998), who present a micro-based model of competitive devaluations. Our model is different in that it analyzes the strategic interactions that lead to possible currency crises whereas their paper studies the different welfare consequences of a devaluation. In contrast to their model, self-fulfilling expectations of private agents play a crucial role in our analysis. Finally, because we assume the two countries only trade with the country to which they fix their exchange rate, we restrict ourselves to the case when the spillovers of a devaluation are negative. This is in contrast to the two papers cited above as well as to Obstfeld and Rogoff (1995) who show that in presence of trade, the spillovers from a devaluation can be positive via the terms of trade effects. We present a simple micro-founded model of competitive devaluations in Section 2. We then solve and analyze the different possible equilibria of the game in Section 3. Section 4 concludes.

In this paper, we have asked two sets of questions. First, how do regional trade structures influence the instability of a fixed exchange rate regime and the probability that it collapses simultaneously in the region? The answer to this question is that the more trade competition between countries in a monopolistic sector, the more fragile fixed exchange rate regimes are. We have shown that this is the case even in a model where there is no real gain to a devaluation in equilibrium because the devaluation is perfectly expected by agents. The result is likely to be even stronger if we allow for the possibility of unexpected shocks that would lead to unexpected devaluations. Second, do coordination and cooperation reduce instability and contagion? We have shown that the answer to this second question is more ambiguous. Neither coordination nor cooperation at the regional basis, eliminate the possibility of crises induced by self-fulfilling expectations. However, coordination and cooperation reduce the set of fundamental parameters for which simultaneous devaluations are an equilibrium and are therefore welfare improving. Both are stabilizing in the sense that they reduce the number of equilibria. Because multiple equilibria due to self-fulfilling expectations are a natural outcome of this type of model, the role of coordination on a specific equilibrium is important. In contrast to cooperation, coordination does not require a commitment technology, and should therefore be relatively easy. We have shown however that coordination reduces the possibility of simultaneous devaluations, at the cost of making each country’s more dependent on the other’s fundamentals.