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Growth Forecasts, Belief Manipulation and Capital Markets

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Author Info

  • Lundtofte, Frederik

    () (Department of Economics, Lund University)

  • Leoni, Patrick

    () (EUROMED Management)

Abstract

We analyze how a benevolent, privately-informed government agency would optimally release information about the economy's growth rate when the agents hold heterogeneous beliefs. We model two types of agents: "trusting" and "distrustful." The former has a prior that is identical to that of the government agency, whereas the latter has a prior that differs from that of the government agency. We identify both "revealing" and "nonrevealing" equilibria and demonstrate that the "nonrevealing" equilibria can dominate the "revealing" equilibria in terms of ex-post social welfare.

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File URL: http://www.nek.lu.se/publications/workpap/Papers/WP10_8.pdf
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Bibliographic Info

Paper provided by Lund University, Department of Economics in its series Working Papers with number 2010:8.

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Length: 39 pages
Date of creation: 31 Jul 2010
Date of revision: 30 May 2012
Handle: RePEc:hhs:lunewp:2010_008

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Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/
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Related research

Keywords: Social welfare; information; forecasting; asset pricing; heterogeneous beliefs;

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  1. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, 06.
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