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Interpreting How Others Interpret It: Social Value of Public Information

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  • Alia Gizatulina
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    Abstract

    This paper studies the social value of public information in environments without common knowledge of data-generating process. We show that the stronger is the coordination motive behind agents behaviour, the more they would like to interpret private or public signals in the way that they suspect others are doing it. Consequently, the negative impact of public communication noted by Morris and Shin (2004) can be amplified if agents have doubts whether others take the public signal too literally and/or are too inattentive to their private signals. The social welfare increases when each agent evaluates the precision of public signal correctly but believes that others did not understand the public signal at all, which suggests that there is a scope for the central bank to “obliterate” its communication in a specific way, by making it, e.g., sophisticated and technical.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-04/cesifo1_wp3787.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3787.

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    Date of creation: 2012
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    Handle: RePEc:ces:ceswps:_3787

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    Related research

    Keywords: central bank communication; transparency; common p-belief; coordination game; higher-order uncertainty;

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    1. Lahiri, Kajal & Sheng, Xuguang, 2008. "Evolution of forecast disagreement in a Bayesian learning model," Journal of Econometrics, Elsevier, Elsevier, vol. 144(2), pages 325-340, June.
    2. Ben-David, Itzhak & Graham, John R. & Harvey, Campbell R., 2010. "Managerial Miscalibration," Working Paper Series, Ohio State University, Charles A. Dice Center for Research in Financial Economics 2010-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    3. Christian Hellwig & Laura Veldkamp, 2006. "Knowing what others Know: Coordination motives in information acquisition," 2006 Meeting Papers, Society for Economic Dynamics 361, Society for Economic Dynamics.
    4. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics.
    5. Carlo Rosa & Giovanni Verga, 2008. "The Impact of Central Bank Announcements on Asset Prices in Real Time," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 175-217, June.
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