Information, Amplification and Financial Crisis
Toni Ahnert () and
Staff Working Papers from Bank of Canada
We propose a parsimonious model of information choice in a global coordination game of regime change that is used to analyze debt crises, bank runs or currency attacks. A change in the publicly available information alters the uncertainty about the behavior of other investors. Greater strategic uncertainty makes private information more valuable, so more investors acquire information. This change in the proportion of informed investors amplifies the impact of the initial change in public information on the probability of a crisis. Our amplification result explains how a small deterioration in public information can cause a financial crisis.
Keywords: Financial Institutions; Financial stability (search for similar items in EconPapers)
JEL-codes: D83 G01 (search for similar items in EconPapers)
Pages: 47 pages
New Economics Papers: this item is included in nep-cba, nep-cta and nep-mic
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Journal Article: Information Choice and Amplification of Financial Crises (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:14-30
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