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When Should Policymakers Make Announcements?

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  • Ricardo Reis

    (Columbia University)

Abstract

If a policymaker learns today that there will be a regime change in the future that affects everyone, at what time between now and then should he/she announce it to the public? This paper presents a dynamic model where agents that have a limited amount of attention to allocate between learning about the new regime and everything else. They trade off the benefit of being better informed and making better decisions when the new regime arrives against the cost of paying less attention to current events and making worse decisions now. By choosing when to make the announcement, the policymaker can affect this decision. The policymaker also takes into account that later announcements are more precise, and that agents may inefficiently put too much weight on public signals due to strategic complementarities. I solve for the optimal timing of announcements and the conditions under which it is optimal to keep mum in spite of public interest. As a by-product, I characterize the life-cycle of attention following an announcement, before and after the regime changes.

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File URL: http://www.economicdynamics.org/meetpapers/2011/paper_122.pdf
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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 122.

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Date of creation: 2011
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Handle: RePEc:red:sed011:122

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  1. Dewatripont, M & Roland, G, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Wiley Blackwell, vol. 59(4), pages 703-30, October.
  2. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Working Papers 1038, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," NBER Working Papers 13259, National Bureau of Economic Research, Inc.
  4. Reis, Ricardo, 2005. "Inattentive Producers," CEPR Discussion Papers 5393, C.E.P.R. Discussion Papers.
  5. Mirko Wiederholt, 2010. "rational inattention," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  6. Giuseppe Moscarini, 2007. "Competence Implies Credibility," American Economic Review, American Economic Association, vol. 97(1), pages 37-63, March.
  7. Manuel Amador & Pierre-Olivier Weill, 2008. "Learning from Prices: Public Communication and Welfare," NBER Working Papers 14255, National Bureau of Economic Research, Inc.
  8. Stephen Morris & Hyun Song Shin & Hui Tong, 2006. "Social Value of Public Information: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con: Reply," American Economic Review, American Economic Association, vol. 96(1), pages 453-455, March.
  9. Moscarini, Giuseppe, 2004. "Limited information capacity as a source of inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2003-2035, September.
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Cited by:
  1. Luo, Yulei & Young, Eric, 2013. "Rational Inattention in Macroeconomics: A Survey," MPRA Paper 54267, University Library of Munich, Germany.

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