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Learning from Prices: Public Communication and Welfare

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  • Manuel Amador
  • Pierre-Olivier Weill

Abstract

We study the effect of releasing public information about productivity or monetary shocks using a micro-founded macroeconomic model in which agents learn from the distribution of nominal prices. While a public release has the direct beneficial effect of providing new information, it also has the indirect adverse effect of reducing the informational efficiency of the price system. We show that the negative indirect effect can dominate. Thus, the public information release may increase uncertainty about the monetary shock and reduce welfare. We find that the optimal communication policy is always to release either all or none of the information.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 118 (2010)
Issue (Month): 5 ()
Pages: 866 - 907

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Handle: RePEc:ucp:jpolec:doi:10.1086/657923

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  14. Christian Hellwig & Arijit Mukherji & Aleh Tsyvinski, 2005. "Self-Fulfilling Currency Crises: The Role of Interest Rates," NBER Working Papers 11191, National Bureau of Economic Research, Inc.
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