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Papers by Tijmen Daniëls

Research paper thumbnail of Unique Equilibrium in a Dynamic Model of Speculative Attacks

De Economist, 2009

A main challenge of understanding currency crises is explaining their puzzling timing. Most ``sec... more A main challenge of understanding currency crises is explaining their puzzling timing. Most ``second generation'' currency crisis models are static models with multiple equilibria, and exogenous shifts between equilibria are interpreted as shifts of sentiments on financial markets leading to crises. This paper develops a dynamic, continuous time model with a payoff structure similar to second generation models. We derive endogenous conditions under which shifts in sentiment occur over time, characterise them in terms the strategic risk associated with speculation, and provide comparative statics. Moreover, we show that the findings correspond almost exactly to the implications of global game currency crisis models, which are sometimes used for equilibrium selection in the static context. Therefore, the model provides a robust way to generalise global games to dynamic contexts, and may help to explain the timing of crises. Support from Deutsche Forschungsgemeinschaft (DFG) through SFB649 "economic risk" is gratefully acknowledged. I thank Frank Heinemann, Henk Jager, Franc Klaassen, participants at a seminar at the University of Amsterdam and participants at the 2008 NAKE conference for helpful comments.

Research paper thumbnail of Defending against speculative attacks: A hybrid model of exchange market pressure and crises

While virtually all currency crisis models recognise that the fate of a currency peg depends on h... more While virtually all currency crisis models recognise that the fate of a currency peg depends on how tenaciously policy makers defend it, they seldom model how this is done. We incorporate themechanics of speculation and the interest rate defence against it in the model of Morris and Shin (American Economic Review 88, 1998). Our model captures that the interest rate

Research paper thumbnail of Defending against Speculative Attacks

SSRN Electronic Journal, 2000

While virtually all modern currency crisis models recognise that the decision to abandon an excha... more While virtually all modern currency crisis models recognise that the decision to abandon an exchange rate peg depends on how tenaciously policy makers are willing to defend it, they seldom model how this is done. We incorporate both the mechanics of speculation and of a defence policy against speculation-based on raising the interest rate-in the well-known currency crisis model of Morris and Shin (American Economic Review 88 (1998) 587-97). After adding these natural elements, our model outperforms standard models at explaining stylised features of currency crises. Moreover, our model with endogenous policy responses connects the theoretical currency crisis literature to the literature on exchange market pressure, by bringing together its building blocks: exchange rate changes plus counter-acting defence policies. We use this connection to confirm our model's predictions empirically.

Research paper thumbnail of Every symmetric global game of strategic complementarities has noise-independent selection

Journal of Mathematical Economics, 2011

We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is indep... more We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is independent of the noise structure. As far as we know, all other proofs of noiseindependent selection in such games rely on the existence of a so-called monotone potential (MP) maximiser. Our result is more general, since some 3 × 3 symmetric supermodular games do not admit an MP maximiser. As a corollary, noise-independent selection does not imply the existence of an MP maximiser, nor the existence of an equilibrium robust to incomplete information.

Research paper thumbnail of Currency crises with the threat of an interest rate defence

Journal of International Economics, 2011

While virtually all currency crisis models recognise that the decision to abandon a peg depends o... more While virtually all currency crisis models recognise that the decision to abandon a peg depends on how tenaciously policy makers defend it, this is seldom modelled explicitly. We add the threat of an interest rate defence to the global game model of Morris and Shin (American Economic Review 88, 1998). With an endogenous defence, actions of speculators may become strategic substitutes instead of the usual complements. Nevertheless, our generalised model remains tractable and has a unique threshold equilibrium. It provides additional insights. For instance, the threat of an interest rate defence makes speculation riskier and this may be sufficient to keep speculators out when fundamentals are still relatively strong.

Research paper thumbnail of Characterising equilibrium selection in global games with strategic complementarities

Journal of Economic Theory, 2013

Global games are widely used for equilibrium selection to predict behaviour in complete informati... more Global games are widely used for equilibrium selection to predict behaviour in complete information games with strategic complementarities. We establish two results on the global game selection. First, we show that it is independent of the payoff functions of the global game embedding, though it may depend on the noise distribution. Second, we give a simple sufficient criterion for noise independence in many action games. A many action game may be noise independent if it can be suitably decomposed into smaller (say, binary action) games, for which there are simple criteria guaranteeing noise independence. We delineate the games where noise independence may be established by counting the number of players or actions. In addition, we give an elementary proof that robustness to incomplete information implies noise independence.

Research paper thumbnail of Every Symmetric 3 x 3 Global Game of Strategic Complementarities Is Noise Independent

We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is indep... more We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is independent of the noise structure. As far as we know, all other proofs of noiseindependent selection in such games rely on the existence of a so-called monotone potential (MP) maximiser. Our result is more general, since some 3 × 3 symmetric supermodular games do not admit an MP maximiser. As a corollary, noise-independent selection does not imply the existence of an MP maximiser, nor the existence of an equilibrium robust to incomplete information.

Research paper thumbnail of Unique Equilibrium in a Dynamic Model of Speculative Attacks

De Economist, 2009

A main challenge of understanding currency crises is explaining their puzzling timing. Most ``sec... more A main challenge of understanding currency crises is explaining their puzzling timing. Most ``second generation'' currency crisis models are static models with multiple equilibria, and exogenous shifts between equilibria are interpreted as shifts of sentiments on financial markets leading to crises. This paper develops a dynamic, continuous time model with a payoff structure similar to second generation models. We derive endogenous conditions under which shifts in sentiment occur over time, characterise them in terms the strategic risk associated with speculation, and provide comparative statics. Moreover, we show that the findings correspond almost exactly to the implications of global game currency crisis models, which are sometimes used for equilibrium selection in the static context. Therefore, the model provides a robust way to generalise global games to dynamic contexts, and may help to explain the timing of crises. Support from Deutsche Forschungsgemeinschaft (DFG) through SFB649 "economic risk" is gratefully acknowledged. I thank Frank Heinemann, Henk Jager, Franc Klaassen, participants at a seminar at the University of Amsterdam and participants at the 2008 NAKE conference for helpful comments.

Research paper thumbnail of Defending against speculative attacks: A hybrid model of exchange market pressure and crises

While virtually all currency crisis models recognise that the fate of a currency peg depends on h... more While virtually all currency crisis models recognise that the fate of a currency peg depends on how tenaciously policy makers defend it, they seldom model how this is done. We incorporate themechanics of speculation and the interest rate defence against it in the model of Morris and Shin (American Economic Review 88, 1998). Our model captures that the interest rate

Research paper thumbnail of Defending against Speculative Attacks

SSRN Electronic Journal, 2000

While virtually all modern currency crisis models recognise that the decision to abandon an excha... more While virtually all modern currency crisis models recognise that the decision to abandon an exchange rate peg depends on how tenaciously policy makers are willing to defend it, they seldom model how this is done. We incorporate both the mechanics of speculation and of a defence policy against speculation-based on raising the interest rate-in the well-known currency crisis model of Morris and Shin (American Economic Review 88 (1998) 587-97). After adding these natural elements, our model outperforms standard models at explaining stylised features of currency crises. Moreover, our model with endogenous policy responses connects the theoretical currency crisis literature to the literature on exchange market pressure, by bringing together its building blocks: exchange rate changes plus counter-acting defence policies. We use this connection to confirm our model's predictions empirically.

Research paper thumbnail of Every symmetric global game of strategic complementarities has noise-independent selection

Journal of Mathematical Economics, 2011

We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is indep... more We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is independent of the noise structure. As far as we know, all other proofs of noiseindependent selection in such games rely on the existence of a so-called monotone potential (MP) maximiser. Our result is more general, since some 3 × 3 symmetric supermodular games do not admit an MP maximiser. As a corollary, noise-independent selection does not imply the existence of an MP maximiser, nor the existence of an equilibrium robust to incomplete information.

Research paper thumbnail of Currency crises with the threat of an interest rate defence

Journal of International Economics, 2011

While virtually all currency crisis models recognise that the decision to abandon a peg depends o... more While virtually all currency crisis models recognise that the decision to abandon a peg depends on how tenaciously policy makers defend it, this is seldom modelled explicitly. We add the threat of an interest rate defence to the global game model of Morris and Shin (American Economic Review 88, 1998). With an endogenous defence, actions of speculators may become strategic substitutes instead of the usual complements. Nevertheless, our generalised model remains tractable and has a unique threshold equilibrium. It provides additional insights. For instance, the threat of an interest rate defence makes speculation riskier and this may be sufficient to keep speculators out when fundamentals are still relatively strong.

Research paper thumbnail of Characterising equilibrium selection in global games with strategic complementarities

Journal of Economic Theory, 2013

Global games are widely used for equilibrium selection to predict behaviour in complete informati... more Global games are widely used for equilibrium selection to predict behaviour in complete information games with strategic complementarities. We establish two results on the global game selection. First, we show that it is independent of the payoff functions of the global game embedding, though it may depend on the noise distribution. Second, we give a simple sufficient criterion for noise independence in many action games. A many action game may be noise independent if it can be suitably decomposed into smaller (say, binary action) games, for which there are simple criteria guaranteeing noise independence. We delineate the games where noise independence may be established by counting the number of players or actions. In addition, we give an elementary proof that robustness to incomplete information implies noise independence.

Research paper thumbnail of Every Symmetric 3 x 3 Global Game of Strategic Complementarities Is Noise Independent

We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is indep... more We prove that the global game selection in all 3 × 3 payoff-symmetric supermodular games is independent of the noise structure. As far as we know, all other proofs of noiseindependent selection in such games rely on the existence of a so-called monotone potential (MP) maximiser. Our result is more general, since some 3 × 3 symmetric supermodular games do not admit an MP maximiser. As a corollary, noise-independent selection does not imply the existence of an MP maximiser, nor the existence of an equilibrium robust to incomplete information.