Correlation and coordination risk

Arbeitspapier

We study the potential role of correlated refinancing abilities among di.erent countries for the disruption of government bond markets in a currency union. Following Morris and Shin (2004) we use a global games framework and model the simultaneous investment decision into two assets, which are subject to correlated fundamental states, as a coordination problem with correlated imperfect information. Based on this model we evaluate the role of information about one country for the coordination of creditors of another country. We find, however, that the contagious e.ects on the price of debt precipitated through correlation are modest. Hence, assuming that investors behave as modeled in the global game, we conclude that correlated fundamentals that precipitate informational spillovers appear to be unlikely to play a major role for e.g. the disruption of some Eurozone government bond markets in the aftermath of the recent financial and economic crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Papers in Economics and Statistics ; No. 2016-19

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: government bond refinancing ; global games ; creditor coordination ; currency union

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Geiger, Martin ; Hule, Richard
• Event: Veröffentlichung
• (who): University of Innsbruck, Research Platform Empirical and Experimental Economics (eeecon)
• (where): Innsbruck
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/146136
• Last update: 10.03.2025, 11:44 AM CET