Econometrica: May 2007, Volume 75, Issue 3

Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks
p. 711-756

George‐Marios Angeletos, Christian Hellwig, Alessandro Pavan

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 it—have 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.

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Supplemental Material

Dynamic Global Games of Regime Change: Learning, Multiplicity and Timing of Attacks; Supplementary Material

This supplementary document contains a formal analysis of some of the extensions briefly discussed in Section 5 of the published version. Section A1 considers the game in which agents receive signals about the size of past attacks. Section A2 considers the game with observable shocks to the fundamentals. Section A3 considers the variant in which agents observe the shocks with a one-period lag. Section A4 considers the game with short-lived agents in which the fundamentals follow a random walk. Finally, Section A5 collects the proofs of the formal results contained in this document.

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