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Policy Announcements and Welfare

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  • Vadym Lepetyuk
  • Christian A. Stoltenberg

Abstract

In the presence of idiosyncratic risk, the public revelation of information about uncertain aggregate outcomes such as policy choices can be detrimental to social welfare. By announcing informative signals on non-insurable aggregate risk, the policy maker distorts agents’ insurance incentives and increases the riskiness of the optimal allocation that is feasible in self-enforceable arrangements. As an application, we consider a monetary authority that may reveal changes in the inflation target, and document that the negative effect of distorted insurance incentives can very well dominate conventional effects in favor for the release of better information.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 123 (2013)
Issue (Month): (09)
Pages: 962-997

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Handle: RePEc:ecj:econjl:v:123:y:2013:i::p:962-997

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Cited by:
  1. Sonia Oreffice & Climent Quintana, 2009. "Anthropometry and Socioeconomics in the Couple: Evidence from the PSID," Working Papers 2009-22, FEDEA.

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