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On the Sources and Value of Information: Public Announcements and Macroeconomic Performance

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Author Info
David P. Myatt
Chris Wallace

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Abstract

In the context of macroeconomic coordination, studies of the social value of information distinguish sharply between private and public information. However, no information is truly public (that is, common knowledge) or private in the established sense. This paper develops a general approach by allowing for many informative signals each of which incorporates elements of both public and private information. A measure of relative publicity determines a signal’s equilibrium use and its social value. Output gaps (and hence social losses) arise when signals differ in their publicity: such differences drive a wedge between price-formation and expectations-formation processes. Turning to the effect of public announcements, and contrary to previous results, it is never socially optimal to withhold information completely, nor is it optimal to release perfectly public (or, indeed, perfectly private) information. Instead, when perfect communication is feasible, limited clarity enhances macroeconomic performance.

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Publisher Info
Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 411.

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Date of creation: 2008
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Handle: RePEc:oxf:wpaper:411

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Related research
Keywords: Beauty Contests; Island Economies; Coordination; Public and Private Signals; Public Announcements;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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