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

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Author Info
George-Marios Angeletos
Christian Hellwig
Alessandro Pavan

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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 attack 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 fate of the regime but not the timing or the number of attacks. Finally, equilibrium dynamics can alternate between phases of tranquility-where no attack is possible-and phases of distress-where a large attack can occur-even without changes in fundamentals. Copyright The Econometric Society 2007.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2007.00766.x
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Publisher Info
Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 3 (05)
Pages: 711-756
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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:3:p:711-756

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  1. Moheeput, Ashwin, 2008. "Financial Fragility, Systemic Risks and Informational Spillovers : Modelling Banking Contagion as State-Contingent Change in Cross-Bank Correlation," The Warwick Economics Research Paper Series (TWERPS) 853, University of Warwick, Department of Economics. [Downloadable!]
  2. Torun Dewan & David P. Myatt, 2007. "The Qualities of Leadership: Direction, Communication, and Obfuscation," Economics Series Working Papers 311, University of Oxford, Department of Economics. [Downloadable!]
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  3. Yin-Wong Cheung & Daniel Friedman, 2008. "Speculative Attacks: A Laboratory Study in Continuous Time," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  4. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics. [Downloadable!]
  5. Eugen Kovac & Jakub Steiner, 2008. "Reversibility in Dynamic Coordination Problems," ESE Discussion Papers 183, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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  6. Geir H. Bjønnes & Steinar Holden & Dagfinn Rime & Haakon O. Aa. Solheim, 2009. "'Large' vs. 'Small' Players: A Closer Look at the Dynamics of Speculative Attacks," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  7. Bernardo Guimaraes, 2008. "Vulnerability of Currency Pegs: Evidence from Brazil," CEP Discussion Papers dp0871, Centre for Economic Performance, LSE. [Downloadable!]
  8. Guimarães, Bernardo, 2007. "Currency Crisis Triggers: Sunspots or Thresholds?," CEPR Discussion Papers 6487, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Tijmen R. Daniels & Henk Jager & Franc Klaassen, 2008. "Defending against Speculative Attacks," Tinbergen Institute Discussion Papers 08-090/2, Tinbergen Institute, revised 06 Apr 2009. [Downloadable!]
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  10. John Duffy & Jack Ochs, 2009. "Equilibrium Selection in Static and Dynamic Entry Games," Working Papers 376, University of Pittsburgh, Department of Economics, revised Feb 2009. [Downloadable!]
  11. Hennessy, David A., 2007. "Coordinating to Eradicate Animal Disease, and the Role of Insurance Markets," Staff General Research Papers 12856, Iowa State University, Department of Economics. [Downloadable!]
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  12. Amil Dasgupta & Jakub Steiner & Colin Stewart, 2007. "Efficient Dynamic Coordination with Individual Learning," Working Papers tecipa-301, University of Toronto, Department of Economics. [Downloadable!]
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  13. Fernando Broner, 2007. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," Economics Working Papers 1046, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  14. Jakub Steiner, 2006. "Coordination Cycles," ESE Discussion Papers 162, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
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