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Selection-free predictions in global games with endogenous information and multiple equilibria

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  • ,

    (Department of Economics, Massachusetts Institute of Technology)

  • ,

    (Department of Economics, Northwestern University)

Abstract
Global games with endogenous information often exhibit multiple equilibria. In this paper we show how one can nevertheless identify useful predictions that are robust across all equilibria and that could not have been delivered in the common-knowledge counterparts of these games. Our analysis is conducted within a flexible family of games of regime change, which have been used to model, inter alia, speculative currency attacks, debt crises, and political change. The endogeneity of information originates in the signaling role of policy choices. A novel procedure of iterated elimination of non-equilibrium strategies is used to deliver probabilistic predictions that an outside observer---an econometrician---can form under arbitrary equilibrium selections. The sharpness of these predictions improves as the noise gets smaller, but disappears in the complete-information version of the model.

Suggested Citation

  • , & ,, 2013. "Selection-free predictions in global games with endogenous information and multiple equilibria," Theoretical Economics, Econometric Society, vol. 8(3), September.
    • Handle: RePEc:the:publsh:1156
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    6. Angeletos, G.-M. & Lian, C., 2016. "Incomplete Information in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1065-1240, Elsevier.
    7. Szkup, Michal & Trevino, Isabel, 2015. "Information acquisition in global games of regime change," Journal of Economic Theory, Elsevier, vol. 160(C), pages 387-428.
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    More about this item

    Keywords

    Global games; multiple equilibria; endogenous information; robust predictions;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance

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