Global games of regime change-coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attack ithave 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 take actions in many periods and to learn about the underlying fundamentals over time. We first provide a simple recursive algorithm for the characterization of monotone equilibria. We then show how the interaction of the knowledge that the regime survived past attacks with the arrival of information over time, or with changes in fundamentals, leads to interesting equilibrium properties. First, multiplicity may obtain under the same conditions on exogenous information that guarantee uniqueness in the static benchmark. Second, fundamentals may predict the eventual fate of the regime but not the timing or the number of attacks. Finally, equilibrium dynamics can alternate between phases of tranquility-where no attack is possible-and phases of distress-where a large attack can occur-even without changes in fundamentals.

This section shows that the equilibrium of the action game in section 1 of the main text is unique.It does that by adapting an argument first made Angeletos and Pavan (2007, propositions 1 and 3) to our environment. The idea of the proof is that there is a social planner problem such that every equilibrium of our model is also a solution to this planning problem. The planning problem is strictly convex, meaning that it has a unique minimum. Since the planning problem has a unique solution and every equilibrium is a solution to the planning problem, the equilibrium of the model must be unique.We begin by setting up some notation for the proof. We letp (·) denote the candidate equilibrium function characterized by equation (4) in the main text, and will make use of the fact that s = b ω. We let F (ω) denote the prior distribution of ω, with density f (ω). We let µ denote the distribution of the agents' information choices, and φ (Xz|ω) the distribution of observed signals, conditional on the state ω. Together, µ and φ determine the distribution F (I|ω)of information sets I = (χ, Xz), conditional on the state ω. The agents' posterior beliefs conditional on I are defined by the pdfφ.Proposition 1 Let P denote the set of functions p for which

This paper introduces signaling in a global game so as to examine the informational role of policy in coordination environments such as currency crises and bank runs. While exogenous asymmetric information has been shown to select a unique equilibrium, we show that the endogenous information generated by policy interventions leads to multiple equilibria. The policy maker is thus trapped into aWe are grateful to the editor, Nancy Stokey, and two anonymous referees for suggestions that greatly helped us improve the paper. For comments we thank

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We develop a stylized currency crises model with heterogeneous information among investors and endogenous determination of interest rates in a noisy rational expectations equilibrium. Our model captures three key features of interest rates: the opportunity cost of attacking the currency responds to the investors' behavior; the domestic interest rate may influence the central bank's preferences for a fixed exchange rate; and the domestic interest rate serves as a public signal which aggregates private information about fundamentals. We explore the payoff and informational channels through which interest rates determine devaluation outcomes, and examine the implications for equilibrium selection by global games methods. Our main conclusion is that multiplicity is not an artifact of common knowledge. In particular, we show that multiplicity emerges robustly, either when a devaluation is triggered by the cost of high domestic interest rates as in Obstfeld (1996), or when a devaluation is triggered by the central bank's loss of foreign reserves as in Obstfeld (1986), provided that the domestic asset supply is sufficiently elastic in the interest rate and shocks to the domestic bond supply are sufficiently small.

Pricing complementarities play a key role in determining the propagation of monetary disturbances in sticky price models. We propose a procedure to infer the degree of firm-level pricing complementarities in the context of a menu cost model of price adjustment using data on prices and market shares at the level of individual varieties. We then apply this procedure by calibrating our model (in which pricing complementarities are based on decreasing returns to scale at the variety level) using scanner data from a large grocery chain. Our data is consistent with moderately strong levels of firm-level pricing complementarities, but they appear too weak to generate much larger aggregate real effects from nominal shocks than a model without these pricing complementarities.

We characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods. First, we show that equilibrium debt limits must satisfy a simple condition that allows agents to exactly roll over existing debt period by period. Second, we provide an equivalence result, whereby the resulting set of equilibrium allocations with self‐enforcing private debt is equivalent to the allocations that are sustained with unbacked public debt or rational bubbles. In contrast to the classic result by Bulow and Rogoff (1989a), positive levels of debt are sustainable in our environment because the interest rate is sufficiently low to provide repayment incentives.

In this paper, we use both the new facts and the new quantitative models to revisit an old question, namely, that of quantifying the welfare benefits of low inflation. Our model includes two channels through which steady-state inflation affects welfare. The first channel is based on the presence of nominal rigidities, which induce fluctuations in relative prices between products whose prices adjust, and products whose prices remain fixed, thus distorting the composition of output away from efficiency, and lowering aggregate productivity and welfare.These relative price distortions are eliminated when inflation is zero, so that the need for price adjustment is eliminated. This argument is at the core of a large literature on optimal