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Optimal dynamic public communication

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  • Marcello Miccoli

    () (Bank of Italy)

Abstract

This paper builds a dynamic model of the information flow between partially informed financial institutions and a public agency. The financial institutions decide how to allocate their portfolio between a risk-free technology with a known payoff and a risky technology whose payoff is unknown. The public agency learns about the value of the unknown payoff by observing with measurement error the actions of the financial institutions and decides whether to communicate the information at the agency's disposal. The paper characterizes the optimal public communication plan and shows that full transparency (taken as the release of information whenever it is collected) is not always optimal. Instead, optimal plans involve delayed communication, the amount of delay depending on the precision of private information and the size of the agency's measurement error. The explanation of the result lies in the collection process of public information: while releasing information improves the welfare of the agents, it also decreases the informational content of their actions, hampering the agency's learning and reducing the benefits of future public communication.

Suggested Citation

  • Marcello Miccoli, 2012. "Optimal dynamic public communication," Temi di discussione (Economic working papers) 856, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_856_12
    as

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    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2012/2012-0856/en_tema_856.pdf
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    References listed on IDEAS

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    1. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521530927, May.
    2. Sandra Gomes & Pascal Jacquinot & Matthias Mohr & Massimiliano Pisani, 2013. "Structural Reforms and Macroeconomic Performance in the Euro Area Countries: A Model-Based Assessment," International Finance, Wiley Blackwell, vol. 16(1), pages 23-44, February.
    3. Chamley,Christophe P., 2004. "Rational Herds," Cambridge Books, Cambridge University Press, number 9780521824019, May.
    4. Xavier Vives, 1993. "How Fast do Rational Agents Learn?," Review of Economic Studies, Oxford University Press, vol. 60(2), pages 329-347.
    5. Roberto Burguet & Xavier Vives, 2000. "Social learning and costly information acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(1), pages 185-205.
    6. Amador, Manuel & Weill, Pierre-Olivier, 2006. "Learning from Private and Public Observation of Other's Actions," MPRA Paper 109, University Library of Munich, Germany.
    7. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2008. "The Expected Interest Rate Path: Alignment of Expectations vs. Creative Opacity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 145-185, September.
    8. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
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    Citations

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    Cited by:

    1. Giuseppe Ferrero & Marcello Miccoli & Sergio Santoro, 2014. "Informational Effects of Monetary Policy," Temi di discussione (Economic working papers) 982, Bank of Italy, Economic Research and International Relations Area.
    2. Jean-Paul L'Huillier, 2012. "Consumers' Imperfect Information and Price Rigidities," EIEF Working Papers Series 1209, Einaudi Institute for Economics and Finance (EIEF), revised Aug 2012.

    More about this item

    Keywords

    value of information; learning; pubblic communication;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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