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Information quality and crises in regime-change games

Felipe Iachan () and Plamen T. Nenov

Journal of Economic Theory, 2015, vol. 158, issue PB, 739-768

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.

Keywords: Global games; Public and private information; Rollover (search for similar items in EconPapers)
JEL-codes: E44 G01 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.jet.2014.03.005

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