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Information quality and crises in regime-change games

Author

Listed:
  • Iachan, Felipe S.
  • Nenov, Plamen T.
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.

Suggested Citation

  • Iachan, Felipe S. & Nenov, Plamen T., 2015. "Information quality and crises in regime-change games," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 739-768.
  • Handle: RePEc:eee:jetheo:v:158:y:2015:i:pb:p:739-768
    DOI: 10.1016/j.jet.2014.03.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Global games; Public and private information; Rollover;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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