Information dynamics and equilibrium multiplicity in global games of regime changes
By: George-Marios Angeletos, Christian Hellwig, Alessandro Pavan
Contributors: Hellwig, Christian; Pavan, Alessandro; National Bureau of Economic Research; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 04-42; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 04-42.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2004
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 30
Description: Global games of regime change - that is, coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attacks it - have been used to study crises phenomena such as currency attacks, bank runs, debt crises, and political change. We extend the static benchmark examined in the literature by allowing agents to accumulate information over time and take actions in many periods. It is shown that dynamics may lead to multiple equilibria under the same information assumptions that guarantee uniqueness in the static benchmark. Multiplicity originates in the interaction between the arrival of information over time and the endogenous change in beliefs induced by the knowledge that the regime survived past attacks. This interaction also generates interesting equilibrium properties, such as the possibility that fundamentals predict the eventual regime outcome but not the timing or the number of attacks, or that dynamics alternate between crises and phases of tranquility without changes in fundamentals. Keywords: Global games, coordination, multiple equilibria, information dynamics, crises . JEL Classifications: C7, D7, D8, F3.
Notes: "December 2004."

Includes bibliographical references (p. 29-30).

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