DOI: https://doi.org/10.71734/DP-2026‑5

Many models in finance and economics feature multiple self-fulfilling equilibria. This review paper shows how the “global games” approach can be used to resolve this indeterminacy of equilibrium outcomes. By introducing incomplete information about economic fundamentals, global games yield a unique and economically meaningful equilibrium. The approach provides a tractable way to study financial fragility, coordination failures, and the design of macroprudential policies.

From panic to precision

Many classic models of bank runs, currency attacks, or sovereign debt crises alike feature both “good” and “bad” equilibria for the same fundamental parameters. On the one hand, such multiplicity provides an intuitive way of modeling the fragility of an economy or financial institution as the possibility of suddenly slipping from a “good” to a “bad” outcome. On the other hand, multiplicity limits the use of models for policy analysis. Global games address this issue by assuming that agents receive slightly noisy signals about fundamentals. This modest uncertainty breaks the circular logic of self-fulfilling expectations. The resulting unique equilibrium preserves the intuition of fragility but also delivers precise, testable predictions that cannot be obtained from the underlying multiple equilibrium framework.

Why it matters for macroprudential policy

The basic global games framework extends to numerous settings, e.g. with large players, heterogeneous beliefs, or network interlinkages. It shows how the actions of a few key institutions can shift agents’ expectations and trigger cascades. For policymakers, the message is clear: fragility is not just about weak fundamentals but also about how information and beliefs are structured. Global games offer a disciplined way to evaluate when interventions – such as liquidity support, disclosure rules, or capital surcharges – can shift the economic or financial system towards greater stability.

In short, multiple equilibria need not imply policy paralysis. Through the global games lens, policymakers can better distinguish between fundamental and self-fulfilling crises and design prudential tools that reduce the scope for inefficient coordination failures.

Anand, K., P. J. König (2026), Multiple equilibria? Don’t panic! – A hitchhiker’s guide to global games, Bundesbank Discussion Paper, No 05/2026