This paper studies defense policies in a global-game model of speculative currency attacks. Although the signaling role of policy interventions sustains multiple equilibria, a number of novel predictions emerge which are robust across all equilibria. (i) The central bank intervenses by raising...

This paper examines the ability of a policy maker to control equilibrium outcomes in a global coordination game; applications include currency attacks, bank runs, and debt crises. A unique equilibrium is known to survive when the policy is exogenously fixed. We show that, by conveying...

Global games of regime change–coordination games of incomplete information in which a status quo is abandoned once a sufficiently large fraction of agents attacks it–have been used to study crises phenomena such as currency attacks, bank runs, debt crises, and political change. We extend the...

In recent years there has been a growing interest in macro models with heterogeneity in information and complementarity in actions. These models deliver promising positive properties, such as heightened inertia and volatility. But they also raise important normative questions, such as whether...

This paper studies defense policies in a global-game model of speculative currency attacks. Although the signaling role of policy interventions sustains multiple equilibria, a number of novel predictions emerge which are robust across all equilibria. (i) The central bank intervenes by raising...

The arrival of new, unfamiliar, investment opportunities is often associated with exuberant movements in asset prices and real economic activity. During these episodes of high uncertainty, financial markets look at the real sector for signals about the profitability of the new investment...

The arrival of new, unfamiliar, investment opportunities - e.g., internet commerce, emerging markets, novel financial instruments - is often associated with large, "exuberant," movements in asset prices and real investment. While irrational explanations of these phenomena abound, in this paper...

Financial markets look at data on aggregate investment for clues about underlying profitability. At the same time, firms' investment depends on expected equity prices. This generates a two-way feedback between financial market prices and investment. In this paper we study the positive and...