Ambiguity and Coordination in a Global. Game Model of Financial Crises
AbstractWe consider a two-player global game where creditors, who finance some investment project, have to decide whether to roll over their loans or not. We use a non-Bayesian approach where creditors exhibit some aversion to ambiguity. We show that an increase in ambiguity reduces the perceived coordination of players in rolling over their loans. This contibutes to increasing the probability of a financial crisis, and therefore provides an additional argument in favor of transparency in the model considered.
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Date of creation: Nov 2012
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Financial crises ; Ambiguity ; Uncertainty ; Global games ; Coordination ; Transparency;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-17 (All new papers)
- NEP-MIC-2012-11-17 (Microeconomics)
- NEP-UPT-2012-11-17 (Utility Models & Prospect Theory)
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