On the Dynamics of Information, Coordination and Regime Change
AbstractThis paper examines how the dynamics of information influences the dynamics of coordination in an environment with strategic complementarities and heterogeneous expectations. We consider a simple dynamic global game of regime change, in which the status quo is abandoned when a sufficiently large fraction of agents attacks it. Applications include bank runs, currency crises, revolutions, and political reforms. We show that the occurrence of coordinated attacks and the timing of regime change depend, not only on the evolution of information, but also on arbitrary self-fulfilling expectations. Despite the indeterminacy in short-run dynamics, long-run outcomes are driven by fundamentals: There is a unique threshold below which regime change is inevitable in the long run. Moreover, all equilibrium paths are characterized by the succession of short phases of high risk of a crisis and long phases of tranquility, which may explain why phenomena such as speculative attacks and revolutions appear as spikes in economic or social activity.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 270.
Date of creation: 2004
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Coordination; Dynamics; Regime Change; Global Games;
Find related papers by JEL classification:
- C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
- D7 - Microeconomics - - Analysis of Collective Decision-Making
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- F3 - International Economics - - International Finance
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- Fernando Broner, 2003.
"Discrete devaluations and multiple equilibria in a first generation model of currency crises,"
Economics Working Papers
839, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2007.
- Broner, Fernando A., 2008. "Discrete devaluations and multiple equilibria in a first generation model of currency crises," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 592-605, April.
- Fernando A. Broner, 2004. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," 2004 Meeting Papers 264, Society for Economic Dynamics.
- Broner, Fernando A, 2006. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," CEPR Discussion Papers 5876, C.E.P.R. Discussion Papers.
- Fernando A Broner, 2006. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," Working Papers 309, Barcelona Graduate School of Economics.
- Fernando A. Broner, 2004. "Discrete Devaluations and Multiple Equilibria in a First Generation Model of Currency Crises," Working Papers 186, Barcelona Graduate School of Economics.
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