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Information quality and crises in regime-change games

Author

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  • Iachan, Felipe S.
  • Nenov, Plamen T.

Abstract

When crises potentially originate from coordination failures, does a deterioration in the quality of the information available to market participants contribute towards instability? We address this question in a general global game of regime change with a unique equilibrium and illustrate the implications in a debt rollover application. We show that a reduction in the quality of information increases the likelihood of regime change, thus reducing stability, when the net payoff in the case of a successful attack is more sensitive to the fundamentals than the net payoff in the case of status quo survival. We also discuss welfare implications.

Suggested Citation

  • Iachan, Felipe S. & Nenov, Plamen T., 2015. "Information quality and crises in regime-change games," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 739-768.
  • Handle: RePEc:eee:jetheo:v:158:y:2015:i:pb:p:739-768
    DOI: 10.1016/j.jet.2014.03.005
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Carlo Galli & Marco Bassetto, 2016. "Is Inflation Default? The Role of Information in Debt Crises," 2016 Meeting Papers 308, Society for Economic Dynamics.
    2. Ahnert, Toni & Bertsch, Christoph, 2013. "A wake-up call: information contagion and strategic uncertainty," Working Paper Series 282, Sveriges Riksbank (Central Bank of Sweden), revised 01 Mar 2014.
    3. repec:eee:macchp:v2-1065 is not listed on IDEAS
    4. George-Marios Angeletos & Chen Lian, 2016. "Incomplete Information in Macroeconomics: Accommodating Frictions in Coordination," NBER Working Papers 22297, National Bureau of Economic Research, Inc.
    5. Szkup, Michal, 2017. "Multiplier effect and comparative statics in global games of regime change," MPRA Paper 82729, University Library of Munich, Germany.
    6. repec:eee:gamebe:v:113:y:2019:i:c:p:262-284 is not listed on IDEAS
    7. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    8. Toni Ahnert & Benjamin Nelson, 2016. "Opaque Assets and Rollover Risk," Staff Working Papers 16-17, Bank of Canada.
    9. repec:eee:jfinec:v:133:y:2019:i:1:p:99-112 is not listed on IDEAS
    10. Joan de Martí & Pau Milán, 2018. "Regime Change in Large Information Networks," Working Papers 1049, Barcelona Graduate School of Economics.

    More about this item

    Keywords

    Global games; Public and private information; Rollover;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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