Financial Prices and Equilibrium Uniqueness In Global Games Models of Crises

We establish novel conditions under which a unique equilibrium exists in a global game model of crises, following Morris and Shin (1998), even in the presence of public information conveyed through financial prices, as in Angeletos and Werning (2006). Our analysis identifies a previously unexplored interaction between strategic uncertainty in coordination games and the informational role of financial markets: as the precision of private signals increases, strategic uncertainty intensifies, leading to a reduction in the information aggregated by financial prices. Leveraging this insight, we demonstrate that when private signals are sufficiently precise, the uniqueness result of Morris and Shin (1998) remains valid, despite the endogenous adjustments in the public information content of financial prices. Our findings contribute to the literature on information aggregation in financial markets and the robustness of equilibrium uniqueness in coordination games.