Article ID Journal Published Year Pages File Type
956616 Journal of Economic Theory 2015 30 Pages PDF
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.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
, ,