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Growth Forecasts, Belief Manipulation and Capital Markets

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  • Lundtofte, Frederik

    ()
    (Department of Economics and Knut Wicksell Centre for Financial Studies, Lund University)

  • Leoni, Patrick

    (Kedge Business School)

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 agent: "conforming" and "dissenting." 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 informative and uninformative equilibria and demonstrate that the uninformative equilibria can dominate the informative ones in terms of ex-post social welfare.

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Bibliographic Info

Paper provided by Knut Wicksell Centre for Financial Studies, Lund University in its series Knut Wicksell Working Paper Series with number 2013/15.

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Length: 45 pages
Date of creation: 13 Sep 2013
Date of revision:
Handle: RePEc:hhs:luwick:2013_015

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Postal: Knut Wicksell Centre for Financial Studies, Lund University School of Economics and Management, P.O. Box 7080, S-220 07 Lund, Sweden
Phone: +46 46-222 32 61
Fax: +46 46-222 34 06
Web page: http://www.lusem.lu.se/kwc
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Keywords: Social welfare; information; forecasting; asset pricing; heterogeneous beliefs;

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References

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  1. 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.
  2. Campbell, Colin M., 2004. "Blackwell's ordering and public information," Journal of Economic Theory, Elsevier, vol. 114(2), pages 179-197, February.
  3. 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.
  4. Stijn Van Nieuwerburgh & Laura Veldkamp, 2007. "Information Immobility and the Home Bias Puzzle," NBER Working Papers 13366, National Bureau of Economic Research, Inc.
  5. Facundo Albornoz & Joan Esteban & Paolo Vanin, 2014. "Market Distortions And Government Transparency," Journal of the European Economic Association, European Economic Association, vol. 12(1), pages 200-222, 02.
  6. 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.
  7. Lars Jonung & Martin Larch, 2004. "Improving fiscal policy in the EU: the case for independent forecasts," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 210, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  8. 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.
  9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, Econometric Society, vol. 46(6), pages 1429-45, November.
  10. 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.
  11. 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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