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The CNBC Effect: Welfare Effects of Public Information

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Abstract

What are the welfare effects of enhanced dissemination of public information through the media and disclosures by market participants with high public visibility? For instance, is it always desirable to have frequent and timely publications of economic statistics by government agencies and the central bank? We examine the impact of public information in a setting where agents take actions appropriate to the underlying fundamentals, but they also have a coordination motive arising from a strategic complementarity in their actions. When the agents have no private information, greater provision of public information always increases welfare. However, when agents also have access to independent sources of information, the welfare effect of increased public disclosures is ambiguous.

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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1312.

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Length: 35 pages
Date of creation: Jul 2001
Date of revision:
Publication status: Published in American Economic Review (2002), 92(5): 1521-1534
Handle: RePEc:cwl:cwldpp:1312

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Keywords: Transparency; disclosures; coordination; overreaction to public information;

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References

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  1. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers dp373, Financial Markets Group.
  2. Lamont, Owen A., 2002. "Macroeconomic forecasts and microeconomic forecasters," Journal of Economic Behavior & Organization, Elsevier, vol. 48(3), pages 265-280, July.
  3. Michael P. Keane & David E. Runkle, 1998. "Are Financial Analysts' Forecasts of Corporate Profits Rational?," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 768-805, August.
  4. Hirshleifer, Jack, 1971. "The Private and Social Value of Information and the Reward to Inventive Activity," American Economic Review, American Economic Association, vol. 61(4), pages 561-74, September.
  5. Shin, Hyun Song & Morris, Stephen, 2000. "Welfare effects of public information," Discussion Paper Series 1: Economic Studies 2000,07, Deutsche Bundesbank, Research Centre.
  6. Samet, Dov, 1998. "Iterated Expectations and Common Priors," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 131-141, July.
  7. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  8. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
  9. Hellwig, Christian, 2002. "Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games," Journal of Economic Theory, Elsevier, vol. 107(2), pages 191-222, December.
  10. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
  11. Raith, Michael, 1996. "A General Model of Information Sharing in Oligopoly," Journal of Economic Theory, Elsevier, vol. 71(1), pages 260-288, October.
  12. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 0026, European Central Bank.
  13. Christina E. Bannier, 2003. "Private and Public Information in Self-Fulfilling Currency Crises," International Finance 0309006, EconWPA.
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Cited by:
  1. Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
  2. Thomas Schuster, 2003. "Meta-Communication and Market Dynamics. Reflexive Interactions of Financial Markets and the Mass Media," Finance 0307014, EconWPA.
  3. Seth B. Carpenter, 2004. "Transparency and monetary policy: what does the academic literature tell policymakers?," Finance and Economics Discussion Series 2004-35, Board of Governors of the Federal Reserve System (U.S.).
  4. Rafael Hortala-Vallve, 2005. "On bank disclosure and subordinated debt," LSE Research Online Documents on Economics 28650, London School of Economics and Political Science, LSE Library.

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