Growth Forecasts, Belief Manipulation and Capital Markets
AbstractWe 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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Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2010:8.
Length: 39 pages
Date of creation: 31 Jul 2010
Date of revision: 30 May 2012
Contact details of provider:
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
More information through EDIRC
Social welfare; information; forecasting; asset pricing; heterogeneous beliefs;
Other versions of this item:
- Lundtofte, Frederik & Leoni, Patrick, 2013. "Growth Forecasts, Belief Manipulation and Capital Markets," Knut Wicksell Working Paper Series 2013/15, Knut Wicksell Centre for Financial Studies, Lund University.
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-21 (All new papers)
- NEP-CBA-2010-08-21 (Central Banking)
- NEP-CTA-2010-08-21 (Contract Theory & Applications)
- NEP-FOR-2010-08-21 (Forecasting)
- NEP-REG-2010-08-21 (Regulation)
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