Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks

ECONOMETRICA, Vol. 75, No. 3, pp. 711-756, May 2007

55 Pages Posted: 5 Jun 2010

See all articles by George-Marios Angeletos

George-Marios Angeletos

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Christian Hellwig

University of Toulouse 1 - Toulouse School of Economics (TSE)

Alessandro Pavan

Northwestern University

Date Written: May 2007

Abstract

Global games of regime change - 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 take actions in many periods and to learn about the underlying fundamentals over time. We first provide a simple recursive algorithm for the characterization of monotone equilibria. We then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time, or with changes in fundamentals, leads to interesting equilibrium properties. First, multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark. Second, fundamentals may predict the eventual regime outcome but not the timing or the number of attacks. Finally, equilibrium dynamics can alternate between phases of tranquillity - where no attack is possible - and phases of distress - where a large attack can occu - even without changes in fundamentals.

Keywords: Global games, coordination, multiple equilibria, information dynamics, crises

JEL Classification: C7, D7, D8, F3

Suggested Citation

Angeletos, George-Marios and Hellwig, Christian and Pavan, Alessandro, Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks (May 2007). ECONOMETRICA, Vol. 75, No. 3, pp. 711-756, May 2007. Available at SSRN: https://ssrn.com/abstract=1619991

George-Marios Angeletos

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-251b
Cambridge, MA 02142
United States
617-452-3859 (Phone)
617-253-1330 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Christian Hellwig

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Alessandro Pavan (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208-2600
United States
847-491-8266 (Phone)
847-491-7001 (Fax)

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