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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://project.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/en
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Keywords: Social welfare; information; forecasting; asset pricing; heterogeneous beliefs;

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References

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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.
  2. Campbell, Colin M., 2004. "Blackwell's ordering and public information," Journal of Economic Theory, Elsevier, vol. 114(2), pages 179-197, February.
  3. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR & CES & MSH, vol. 21(47), pages 491-534, 07.
  4. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
  5. Anat R. Admati & Paul Pfleiderer, 2004. "Broadcasting Opinions with an Overconfident Sender," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 467-498, 05.
  6. Ashiya, Masahiro, 2007. "Forecast accuracy of the Japanese government: Its year-ahead GDP forecast is too optimistic," Japan and the World Economy, Elsevier, vol. 19(1), pages 68-85, January.
  7. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
  8. Tsuchiya, Yoichi, 2013. "Are government and IMF forecasts useful? An application of a new market-timing test," Economics Letters, Elsevier, vol. 118(1), pages 118-120.
  9. 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.
  10. Marshall, John M, 1974. "Private Incentives and Public Information," American Economic Review, American Economic Association, vol. 64(3), pages 373-90, June.
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