GLOBAL CORRELATED SIGNAL GAMES UNIQUE EQUILIBRIA:CURRENCY ATTACKS WITH(OUT) STERILIZATIONS AND BANK RUNS WITH HETEROGENOUS COST AND DIAMOND SEARCH MODEL AS GLOBAL GAME
DOI:
https://doi.org/10.46763/Keywords:
global games, unique equilibria, multiple equilibria, incomplete informationAbstract
Correlated signal games applied to currency attacks with or without sterilization and Diamond-Dybvig model with heterogenous costs. We are deriving unique equilibrium in those Global games. With heterogenous costs attack or run decisions now feature individual thresholds/Homogenous agents mean multiple equilibria (coordination failure), with heterogenous agents (there is unique equilibrium). Some speculators are “small” or “risk-averse” (high ), others are “large” or “informed” (low ). The attack starts with low-cost speculators and builds up as fundamentals deteriorate. This introduces gradual coordination instead of a discrete “sudden run. ”In the Bank run model, each depositor has a different threshold for early withdrawal. The run becomes partial — not all withdraw simultaneously. The heterogeneity can also eliminate multiple equilibria, producing a unique global game equilibrium. In terms of payoff externality: Peg collapses if many attack, Bank collapses if many withdraw. Sterilization makes worst outcome in Morris-Shin model for: Reserves, collapse probability, attack cutoffs , and introduces higher fiscal costs i.e. higher welfare loss. In the global game Diamond search-matching model there is unique (single cutoff θ*) unlike in discrete version of the model where there are multiple equilibria (high and low activity).In global game version of the model refinement selects unique rationalizable outcome, so coordination failure is not possible.
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