This paper analyzes the effect of indexed wage contracts on inflation and social welfare in a Barro--Gordon model with state-contingent monetary policy. Wage indexation reduces the inflation bias but may raise the variance of inflation rates. In social optimum, wages are fully indexed to the...

This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment we measure subjects’ certainty equivalents for three coordination games and one lottery. Behavior in coordination games is...

Global games are widely used for equilibrium selection to predict behaviour in complete information games with strategic complementarities. We establish two results on the global game selection. First, we show that it is independent of the payoff functions of the global game embedding, though it...

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...

This paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries. We apply this method by conducting experiments on a class of one-shot coordination games with strategic complementarities and choices between...

It is an open question whether and how indexed wage contracts reduce welfare or raise average inflation. This paper analyzes the impact of indexed wage contracts on inflation and social welfare in a Barro–Gordon model with discretionary monetary policy by endogenizing social costs of...

We present an experiment in which extrinsic information (signals) may generate sunspot equilibria. The underlying coordination game has a unique symmetric non-sunspot equilibrium, which is also risk-dominant. Other equilibria can be ordered according to risk dominance. We compare treatments with...

Bank liability guarantee schemes have traditionally been viewed as costless measures to shore up investor confidence and prevent bank runs. However, as the experiences of some European countries, most notably Ireland, have demonstrated, the credibility and effectiveness of these guarantees are...