Central bank and government in a speculative attack model
This paper studies the interaction between monetary and fiscal authorities while investors are coordinating on a speculative attack. The authorities want to achieve specific targets for output and inflation but also to avoid a regime change (i.e. sovereign default). They use the traditional policy instruments. The model examines the informational role of simultaneous implementation of monetary and fiscal policies in coordination environments. While endogenous information generated by the intervention of one policy maker has been shown to lead to multiple equilibria, we show that if the actions chosen by the central bank and the government not only deliver information to the markets but also influence the fundamentals of the economy, when the authorities have a strong incentive to preserve the status quo over other objectives, then there is no equilibrium in which investors' strategies depend monotonically on their private information on fundamentals.
|Date of creation:||Sep 2013|
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- Iván Werning & George-Marios Angeletos, 2006.
"Crises and Prices: Information Aggregation, Multiplicity, and Volatility,"
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- George-Marios Angeletos & Ivan Werning, 2004. "Crises and Prices: Information Aggregation, Multiplicity and Volatility," NBER Working Papers 11015, National Bureau of Economic Research, Inc.
- 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 & Christian Hellwig & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks," Econometrica, Econometric Society, vol. 75(3), pages 711-756, 05.
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Levine's Working Paper Archive
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- Carlsson, H. & van Damme, E.E.C., 1993. "Global games and equilibrium selection," Other publications TiSEM 49a54f00-dcec-4fc1-9488-4, Tilburg University, School of Economics and Management.
- Carlsson, H. & van Damme, E.E.C., 1990. "Global games and equilibrium selection," Discussion Paper 1990-52, Tilburg University, Center for Economic Research.
- Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 869-905.
- George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2006.
"Signaling in a Global Game: Coordination and Policy Traps,"
Journal of Political Economy,
University of Chicago Press, vol. 114(3), pages 452-484, June.
- George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2005. "Signaling in a Global Game: Coordination and Policy Traps," Discussion Papers 1400, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, 09.
- Heinemann, Frank & Illing, Gerhard, 2002.
"Speculative attacks: unique equilibrium and transparency,"
Journal of International Economics,
Elsevier, vol. 58(2), pages 429-450, December.
- Heinemann, Frank & Illing, Gerhard, 2002. "Speculative attacks: Unique equilibrium and transparency," Munich Reprints in Economics 19430, University of Munich, Department of Economics.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-419, June.
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