Working Paper: NBER ID: w11017
Authors: Georgemarios Angeletos; Christian Hellwig; Alessandro Pavan
Abstract: Global games of regime change -- that is, coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attacks it -- have been used to study crises phenomena such as currency attacks, bank runs, debt crises, and political change. We extend the static benchmark examined in the literature by allowing agents to accumulate information over time and take actions in many periods. It is shown that dynamics may lead to multiple equilibria under the same information assumptions that guarantee uniqueness in the static benchmark. Multiplicity originates in the interaction between the arrival of information over time and the endogenous change in beliefs induced by the knowledge that the regime survived past attacks. This interaction also generates interesting equilibrium properties, such as the possibility that fundamentals predict the eventual regime outcome but not the timing or the number of attacks, or that dynamics alternate between crises and phases of tranquility without changes in fundamentals.
Keywords: global games; regime change; information dynamics; equilibrium multiplicity
JEL Codes: C7; D7; D8; F3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| arrival of private information + knowledge that the regime survived prior attacks (Y50) | multiple equilibria (D50) |
| private signals are sufficiently low (D82) | optimal to attack the status quo (L21) |
| optimal to attack the status quo (L21) | sustain multiple attacks over time (C41) |
| fundamentals predict eventual outcome of regime change (P27) | do not determine timing or number of attacks (C41) |
| presence of multiple equilibria (C62) | cycles of tranquility and crisis phases (E32) |
| private information dynamics (D89) | influence agents' expectations and current strategic choices (D84) |