Coordination Failures and Asset Prices
AbstractWe augment a standard global coordination game along the lines of Morris and Shin (1998) by an asset market where prices are determined in a noisy Rational Expectations Equilibrium. We study the implications of information aggregation through prices for equilibrium selection arguments in global coordination games, first in a model where the asset market is separate from the coordination game but asset payoffs conditioned on the same fundamentals, then in a stylized currency crises model, where the asset market itself gives rise to the coordination problem. Information aggregation overturns the global games argument for equilibrium uniqueness, and implies that there may be multiple equilibria, in particular when private information is sufficiently precise. This conclusion also arises robustly within our currency crises model, provided that we take into account the role of domestic interest rates in determining the ultimate coordination outcome, along the lines suggested by Obstfeld (1986 and 1996). Despite multiplicity, the global games approach yields novel insights: All equilibria are characterized by discrete changes in domestic interest rates and the probability of devaluation in response to small changes in underlying fundamentals.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 72.
Date of creation: 2004
Date of revision:
Contact details of provider:
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
More information through EDIRC
heterogeneous information; transparency; dynamic strategic complementarities;
Find related papers by JEL classification:
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- G1 - Financial Economics - - General Financial Markets
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Rochet, Jean-Charles & Vives, Xavier, 2002.
"Coordination failures and the lender of last resort : was Bagehot right after all?,"
HWWA Discussion Papers
184, Hamburg Institute of International Economics (HWWA).
- Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
- Rochet, Jean Charles & Vives, Xavier, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," CEPR Discussion Papers 3233, C.E.P.R. Discussion Papers.
- Jean-Charles Rochet & Xavier Vives, 2002. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," FMG Discussion Papers dp408, Financial Markets Group.
- Rochet, Jean-Charles & Vives, Xavier, 2004. "Coordination Failures and the Lender of Last Resort : Was Bagehot Right After All?," IDEI Working Papers 294, Institut d'Économie Industrielle (IDEI), Toulouse.
- Stephen Morris & Hyun Song Shin, 2006. "Endogenous Public Signals and Coordination," Levine's Bibliography 122247000000001309, UCLA Department of Economics.
- Iván Werning & George-Marios Angeletos, 2006.
"Crises and Prices: Information Aggregation, Multiplicity, and Volatility,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1720-1736, December.
- Ivan Werning & George-Marios Angeletos, 2005. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," 2005 Meeting Papers 284, Society for Economic Dynamics.
- George-Marios Angeletos & Ivan Werning, 2004. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," NBER Working Papers 11015, National Bureau of Economic Research, Inc.
- R. L. Bruno, 2008.
"Rule of Law, Institutional Quality and Information,"
634, Dipartimento Scienze Economiche, Universita' di Bologna.
- Bruno, Randolph Luca, 2008. "Rule of Law, Institutional Quality and Information," IZA Discussion Papers 3497, Institute for the Study of Labor (IZA).
- Randolph Luca Bruno, 2006. "Unique Equilibrium in a Model of Rule of Law," LEM Papers Series 2006/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.