Document Type
Article
Publication Date
2023
Journal Title
Journal of Money, Credit, and Banking
Volume Number
56
Issue Number
2-3
First Page
517
Last Page
536
DOI
https://doi.org/10.1111/jmcb.13030
Version
Publisher PDF: the final published version of the article, with professional formatting and typesetting
Creative Commons License
This work is licensed under a CC BY-NC License
Disciplines
Business
Abstract
When equilibrium is indeterminate (i.e., not unique), applied theory often obtains uniqueness either via ad hoc sunspots or via global games. This paper highlights the relative merits of a third selection mechanism—best-response dynamics (BRD)—in the context of various financial crisis frameworks. For example, in the context of a bank run, selection via BRD is preferred (to ad hoc sunspots) because it provides an explicit coordination narrative and (to global games) because it accounts for the fact that depositors realistically may decide to join or leave a bank's queue upon observing its length.
Digital USD Citation
Mäder, Nicolas, "Financial Crises as a Phenomenon of Multiple Equilibria and How to Select Among Them" (2023). School of Business: Faculty Scholarship. 24.
https://digital.sandiego.edu/busnfaculty/24