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Shocks and Crises in the Long Run

  • Frankel, David M.
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    Many recent models of crises involve games with small, anonymous players and finite action sets, such as whether or not to attack a currency or withdraw funds from a bank. We show that such models, when repeated, do not yield recurring crises in the presence of a flexible class of payoff shocks. As an illustration, we apply this result to Diamond and Dybvig's model of bank runs.

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    File URL: http://econ2.econ.iastate.edu/faculty/frankel/plateau.pdf
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    Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 31687.

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    Date of creation: 10 Jul 2010
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    Handle: RePEc:isu:genres:31687
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    Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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    Web page: http://www.econ.iastate.edu
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    1. Toxvaerd, Flavio, 2008. "Strategic merger waves: A theory of musical chairs," Journal of Economic Theory, Elsevier, vol. 140(1), pages 1-26, May.
    2. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
    3. 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.
    4. AUMANN, Robert J., . "Subjectivity and correlation in randomized strategies," CORE Discussion Papers RP 167, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. 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.
    6. Frankel, D.M., 2001. "Shocks and Business Cycles," Papers 2001-10, Tel Aviv.
    7. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
    8. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
    9. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Coordination and Policy Traps," Levine's Bibliography 122247000000000294, UCLA Department of Economics.
    10. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 1-44, January.
    11. Daisuke Oyama, 2004. "Booms And Slumps In A Game Of Sequential Investment With The Changing Fundamentals," The Japanese Economic Review, Japanese Economic Association, vol. 55(3), pages 311-320.
    12. Guimaraes, Bernardo, 2006. "Dynamics of currency crises with asset market frictions," Journal of International Economics, Elsevier, vol. 68(1), pages 141-158, January.
    13. Frankel, David M. & Pauzner, Ady, 2000. "Resolving Indeterminacy in Dynamic Settings: The Role of Shocks," Staff General Research Papers 11924, Iowa State University, Department of Economics.
    14. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
    15. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 869-905.
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