Exchange Rate Fluctuations and International Capital Morements

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In the first paper, we apply the theory of global games to the speculative attack problem. Recently Carisson and van Damme (1990, 91) presented a notion of a global game, which is an incomplete information game where the actual payoff structure is determined by a randon draw from a giben class of games and where each playr gets noisy private information of the selected game. For 2-person 2 x 2 games, they showed that equilibrium play in a global game with vanishing noise forces the playrs to conform to harsanyi and Selten's risk-dominance criterion. In this paper we extend their notion of global games to n-person symetric games, with two possible actions characterized by strategic complementarity. In such a class of games, the theory of global games selects a unique equilibrium that is different from the risk-dominant equilibrium. We show that if the number of the playrs is two, the global-game equilibrium coincides with the risk-dominant equilibrium. We show that the thres hold value of foreign reserve depends on transaction cost and the width of the expected devaluaton.In the second paper, we have described factors affecting Japan7s current accounts and capital Ccounts in the second half of the 1980s and up to 1991. The Japanese current accounts appear to have experienced a sharp reversal. However, this is partly due to transitory factors, such as popurarity of the gold investment accounts, and the Gulf War. Simulation shows that the increase in the current account surpluses in 1991 would have been much more modest, if transitory factors had been eliminated.