We generalize a simple New Keynesian model and show that a flattening of the Phillips curve reduces the size of fiscal multipliers at the zero lower bound (ZLB) on the nominal interest rate. The factors behind the flatting are consistent with micro- and macroeconomic empirical evidence: it is a result of, not a higher level of price rigidity, but an increase in the degree of strategic complementarity in price-setting -- invoked by the assumption of a specific instead of an economy-wide labour market, and decreasing instead of constant-returns-to-scale. In normal times, the efficacy of fiscal policy and resulting multipliers tends to be small because negative wealth effects crowd out consumption, and because monetary policy endogenously reacts to fiscally-driven increases in inflation and output by raising rates, offsetting part of the stimulus. In times of a binding ZLB and a fixed nominal rate, an increase in (expected) inflation instead lowers the real rate, leading to larger fiscal multipliers. Conditional on being in a ZLB-environment, under a flatter Phillips curve, increases in expected inflation are lower, so that fiscal multipliers at the ZLB tend to be lower. Finally, we also discuss the role of solution methods in determining the size of fiscal multipliers. / Series: Department of Economics Working Paper Series

This dissertation consists of three essays that adopt both theoretical and empirical methods of analysis to study certain economies in which the incomplete information and the strategic complementarities between players are important. Chapter 1 explains the topics discussed in the subsequent chapters and gives a brief survey on the literature. In Chapter 2, I revise a traditional global game model by dividing the continuum of players into a group of speculators and a group of stakeholders. It is found that the uniqueness property remains in the new game. Then I extend the static game to a two-stage game and investigate the efficacies of certain label changing mechanisms proposed by the authority to stabilize the regime in the dynamic context. It is shown that a label changing mechanism allowing for downward social mobility may not work, whereas a label changing mechanism allowing for upward social mobility generally makes the regime more stable. In Chapter 3, I add a speculator and an authority to a bank-run model to investigate how the speculator endangers a business or an economy, and what the authority can do about it. In particular, I show that the speculator can increase the financial system's vulnerability by serving as a coordinating device for the investors and thus triggering the crisis. It is further shown that deterring the speculator may not undo the speculator's impact because of multiplicity problem; rewarding holding investors is useless; and eliminating the preemption motives among investors works given enough effort. A discussion of the 1997 Asian financial crisis and the IMF's role in it is also included. Chapter 4 develops a repeated beauty-contest game to investigate the effect of previous winners' actions on the spread of subsequent players' actions. I first characterize the unique equilibrium of the game. Then I focus on the equilibrium dynamics of several variances depicting different forms of action variability. It is found that whether or not a specific variance diminishes over time depends on the relative precision of public and private signals. To illustrate the theoretical results, I conduct an empirical study on the Miss Korea contest. It is found that the contestants' faces have been converging to the ``true beauty'' overall, but diverging from each other over the last 20 years. Chapter 5 concludes. / Ph. D.

Questa tesi si compone di due capitoli indipendenti, ciascuno dei quali analizza il ruolo giocato dall’informazione pubblica endogenamente determinata in situazioni caratterizzate da decision-making decentralizzato e da complementarietà strategica. Il primo capitolo analizza un regime-change game, in cui un governo autoritario può influenzare il consenso popolare attraverso l’implementazione di uno strumento di policy. A policy implementata, i cittadini possono tentare di destituire il governo in carica attraverso una rivolta popolare, la cui probabilità di successo è proporzionale al numero di partecipanti, quest’ultimo proporzionale al livello medio di malcontento. Per migliorare l’efficacia del policy-making, il governo necessita di informazioni affidabili sul consenso popolare, tipicamente difficili da reperire. Tali informazioni sono potenzialmente destabilizzanti, poiché aiutano i cittadini a coordinare meglio la loro azione collettiva. I risultati suggeriscono che maggiore trasparenza è desiderabile ex ante per quei regimi che, in equilibrio, hanno maggiore probabilità di implementare delle politiche di consensus-building. Maggiori livelli di libertà di informazione dovrebbero quindi essere osservati in regimi né troppo deboli, né troppo forti. Il secondo capitolo propone un modello di bank run, in cui la presenza di un mercato secondario efficiente dal punto di vista informativo destabilizza una istituzione a priori solida, tramutando uno shock temporaneo di liquidità in una spirale di fire-sales. Gli investitori di un fondo open-ended posso richiedere la liquidazione anticipata delle proprie quote dopo aver ricevuto informazioni private riguardo alla qualità degli asset in portafogli. Per rimborsare le quote, il fund manager vende una quota di asset sul mercato secondario. I potenziali acquirenti estraggono informazione dall’osservazione dell’offerta aggregata: maggiori volumi d’offerta corrispondono ad un maggior numero di investitori pessimisti, e suggeriscono quindi che gli asset potrebbero essere di scarsa qualità. Temendo una spirale discendente dei prezzi, anche gli investitori meno pessimisti sono indotti, ex ante, a liquidare le proprie quote, ulteriormente sostenendo il feedback negativo. Quando l’informazione privata è sufficientemente imprecisa, complementarietà strategica nelle azioni degli investitori del fondo emerge endogenamente. / This dissertation consists of two essays, aimed at providing a sound theoretical investigation of the signaling role of (observed) collective behavior in environments characterized by incomplete information and strategic complementarity. The effects of both endogenous signaling and (the disclosure of) exogenous public information on the degree of coordination failure that arises from decentralized decision-making are analyzed in-depth. In the first chapter I analyze a regime-change game, where an authoritarian government can influence popular support via the implementation of costly policies. Citizens can challenge the government via a riot, whose chances to succeed increase with the unknown average popular discontent. In order to fine-tune its policy-making, the regime needs reliable information about popular consensus. Such information, however, improves the ability of citizens to coordinate their revolt. I show that public information is ex ante beneficial for those regimes which are more likely to build consensus via policy-making in equilibrium. Higher levels of media freedom should therefore be observed in regimes that are neither too weak, nor too strong. In the second chapter I study a bank run model, where the informational efficiency of a (secondary) financial market pushes into insolvency an a priori solvent institution after a temporary, non-fundamental liquidity shock. The most pessimistic investors of an open-ended fund are allowed to ask for the early liquidation of their share after receiving private information about the economic fundamentals of the fund’s portfolio of assets. Some of the assets in portfolio are sold in the secondary market to meet those investors’ requests. Higher volumes of early redemptions decrease both the current price, via a standard law-of-demand effect, and the future price, by signaling bad news to the market. Anticipating such effect, less pessimistic investors, too, opt for early liquidation, thus further exacerbating the price spiral. Strategic complementarity arises endogenously when investors’ private information is sufficiently poor. In this case, a spiral of fire sales is observed in equilibrium.