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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 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. 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.
    2. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2004. "Coordination and Policy Traps," Levine's Bibliography 122247000000000294, UCLA Department of Economics.
    3. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium Selection in Global Games with Strategic Complementarities," Staff General Research Papers 11920, Iowa State University, Department of Economics.
    4. Flavio Toxvaerd, 2004. "Strategic Merger Waves: A Theory of Musical Chairs," Discussion Paper Series dp359, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    5. 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.
    6. Frankel, David M. & Burdzy, Krzysztof, 2005. "Shocks and Business Cycles," Staff General Research Papers 12274, Iowa State University, Department of Economics.
    7. 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.
    8. Aumann, Robert J., 1974. "Subjectivity and correlation in randomized strategies," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 67-96, March.
    9. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 869-905.
    10. Guimaraes, Bernardo, 2006. "Dynamics of currency crises with asset market frictions," Journal of International Economics, Elsevier, vol. 68(1), pages 141-158, 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. 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.
    13. 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.
    14. 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.
    15. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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