Original title: Sand in the wheels: a dynamic global-game approach
Authors: Mathevet, L. ; Steiner, Jakub
Document type: Research reports
Year: 2012
Language: eng
Series: CERGE-EI Working Paper Series, volume: 459
Abstract: We study the impact of frictions on the prevalence of systemic crises. Agents privately learn about a fixed payoff parameter, and repeatedly adjust their investments while facing transaction costs in a dynamic global game. The model has a rich structure of externalities: payoffs may depend on the volume of aggregate investment, on the concentration of investment, or on its volatility. We examine how small frictions, including those similar to the Tobin tax, affect the equilibrium. We identify conditions under which frictions discourage harmful behavior without compromising investment volume. The analysis is driven by a robust invariance result: the volume of aggregate investment (measured in a pivotal contingency) is invariant to a large family of frictions.
Keywords: dynamic global games; financial frictions; global games

Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: http://www.cerge-ei.cz/pdf/wp/Wp459.pdf
Original record: http://hdl.handle.net/11104/0209160

Permalink: http://www.nusl.cz/ntk/nusl-112728


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