Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games

Hellwig, Christian

doi:10.1006/jeth.2002.2947

Cited by 134 publications

(104 citation statements)

References 13 publications

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“…First, we show that a broad class of currency crisis theories with a unique equilibrium -ranging from …rst-generation models with public information (such as those pioneered by Krugman, 1979, andGarber, 1984) to global games with public and private information (see Morris and Shin, 1998, and Hellwig, 2002) -predicts that the e¤ect of uncertainty on exchange rate pressures is non-monotone and varies with expected fundamentals. 1 Speci…cally, these models predict that, when expected fundamentals are "good,"a reduction in information precision (i.e.…”

Section: Introductionmentioning

confidence: 93%

“…By the properties of distribution functions, it immediately follows that the probability of a speculative attack is decreasing in the location parameter l, and decreasing (increasing) in the precision parameter if l > k t (l < k t ), generalizing Proposition 1. Shin (1998, 2004) and Hellwig (2002) modify the previous framework along three main dimensions. First, following Obstfeld (1996), they introduce a coordination problem: for some range of fundamentals, only a coordinated attack can force the government to abandon the peg; as a result, complete information about fundamentals would yield multiple equilibria.…”

Section: Krugman-flood-garber Modelsmentioning

confidence: 99%

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Uncertainty and currency crises: Evidence from survey data

Prati

Sbracia

2010

Journal of Monetary Economics

220

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This paper studies empirically how uncertainty a¤ects speculation in the foreign exchange markets. We use the dispersion of survey forecasts of key macroeconomic variables to measure uncertainty about fundamentals. We …nd that uncertainty has a non-monotone e¤ect on exchange rate pressures: namely, uncertainty heightens speculative pressures when expected fundamentals are good and eases them when they are bad. We prove that this prediction arises from a broad class of currency crisis theories, ranging from …rst-generation to global-game models. We also show that the proposed empirical strategy remains valid in the presence of forecasters with strategic objectives and use a novel set of instrumental variables to address potential endogeneity bias.JEL Classi…cation: F31, D84, D82

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Section: Introductionmentioning

confidence: 93%

Section: Krugman-flood-garber Modelsmentioning

confidence: 99%

Uncertainty and currency crises: Evidence from survey data

Prati

Sbracia

2010

Journal of Monetary Economics

220

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“…In every equilibrium, P(9, e) -9 for all (9,e a p = ja^l- (15) Next, consider stage 2. The threshold 9*(p) solves 9 -A (9,p) ; equivalently,…”

Section: Exogenous Dividendmentioning

confidence: 99%

Crises and Prices: Information Aggregation, Multiplicity, and Volatility

Angeletos

Werning²

2006

American Economic Review

235

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Many argue that crises -such as currency attacks, bank runs and riots -can be described as times of non-fundamental volatility. We argue that crises are also times when endogenous sources of information are closely monitored and thus an important part of the phenomena. We study the role of endogenous information in generating volatility by introducing a financial market in a coordination game where agents have heterogeneous information about the fundamentals. The equilibrium price aggregates information without restoring common knowledge. In contrast to the case with exogenous information, we find that uniqueness may not be obtained as a perturbation from common knowledge: multiplicity is ensured when individuals observe fundamentals with small idiosyncratic noise. Multiplicity may emerge also in the financial price.When the equilibrium is unique, it becomes more sensitive to non-fundamental shocks as private noise is reduced.JEL Codes: D8, E5, F3, Gl.

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“…2 See Morris and Shin (1999), Daníelson et al (2001), Heinemann and Illing (2002), Hellwig (2002), Metz (2002), and Prati and Sbracia (2002). (1995), and Kübler and Weizsäcker (2004) show that subjects' behavior is more consistent with finite levels of beliefs over beliefs than with theoretical predictions from common knowledge.…”

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confidence: 99%

The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information

Heinemann¹,

Nagel²,

Ockenfels³

2004

Econometrica

195

142

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The theory of global games has shown that coordination games with multiple equilibria may have a unique equilibrium if certain parameters of the payoff function are private information instead of common knowledge. We report the results of an experiment designed to test the predictions of this theory. Comparing sessions with common and private information, we observe only small differences in behavior. For common information, subjects coordinate on threshold strategies that deviate from the global game solution towards the payoff-dominant equilibrium. For private information, thresholds are closer to the global game solution than for common information. Variations in the payoff function affect behavior as predicted by comparative statics of the global game solution. Predictability of coordination points is about the same for both information conditions.

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Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games

Cited by 134 publications

References 13 publications

Uncertainty and currency crises: Evidence from survey data

Uncertainty and currency crises: Evidence from survey data

Crises and Prices: Information Aggregation, Multiplicity, and Volatility

The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information

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