Information Dynamics and Equilibrium Multiplicity in Global Games of Regime Change

32 Pages Posted: 28 Dec 2004 Last revised: 10 Aug 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

Multiple version iconThere are 2 versions of this paper

Date Written: December 2004

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.

Suggested Citation

Angeletos, George-Marios and Hellwig, Christian and Pavan, Alessandro, Information Dynamics and Equilibrium Multiplicity in Global Games of Regime Change (December 2004). NBER Working Paper No. w11017. Available at SSRN: https://ssrn.com/abstract=641069

George-Marios Angeletos (Contact Author)

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Christian Hellwig

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

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Alessandro Pavan

Northwestern University ( email )

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