Dynamic Interventions and Informational Linkages

We model a dynamic economy with strategic complementarity among investors andstudy how endogenous government interventions mitigate coordination failures. We establishequilibrium existence and uniqueness, and we show that one intervention can affectanother through altering the public information structure. A stronger initial interventionhelps subsequent interventions through increasing the likelihood of positivenews, but also leads to negative conditional updates. Our results suggest optimalpolicy should emphasize initial interventions when coordination outcomes tend to correlate.Neglecting informational externalities of initial interventions results in over- orunder-interventions. Moreover, saving smaller funds disproportionally more can generate greater informational benefits at smaller costs