Information Dynamics and Equilibrium Multiplicity in Global Games of Regime Change / George-Marios Angeletos, Christian Hellwig, Alessandro Pavan.

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Angeletos, George-Marios

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w11017.Publication details: Cambridge, Mass. National Bureau of Economic Research 2004.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w11017 (Browse shelf(Opens below))	Not For Loan

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December 2004.

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.