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Optimal Degree of Public Information Dissemination

  • Camille Cornand
  • Frank Heinemann

In currency exchange markets, there is a conflict between individual decisions and the socially optimal solution. Whereas agents have a coordination motive to take the same position, at the social level effective market coordination per se is not socially valuable, and the central bank aims at driving agents’ actions as close as possible to the economic fundamental state. Some studies argue that it might be better to withhold public information because its potential to serve as a focal point induces agents to exaggerate the importance of public announcements. This paper shows that public information should always be provided with maximum precision, but under certain condition not to all agents. Restrictions on the degree of publicity are a better instrument with which to prevent the negative welfare effects of public announcements than restrictions on their precision are. The optimal degree of publicity is always positive.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1353.

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Date of creation: 2004
Date of revision:
Handle: RePEc:ces:ceswps:_1353
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  12. Christian Hellwig, 2002. "Public Announcements, Adjustment Delays, and the Business Cycle (November 2002)," UCLA Economics Online Papers 208, UCLA Department of Economics.
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  18. Morris, Stephen & Shin, Hyun Song, 1998. "A Theory of the Onset of Currency Attacks," CEPR Discussion Papers 2025, C.E.P.R. Discussion Papers.
  19. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  20. Christina E. Bannier & Frank Heinemann, 2005. "Optimal Transparency and Risk-Taking to Avoid Currency Crises," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 161(3), pages 374-, September.
  21. Camille Cornand, 2004. "Speculative Attack and Informational Structure: An Experimental Study," Post-Print halshs-00180118, HAL.
  22. Michael Woodford, 2005. "Central bank communication and policy effectiveness," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 399-474.
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  24. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, 09.
  25. Hellwig, Christian, 2002. "Public Information, Private Information, and the Multiplicity of Equilibria in Coordination Games," Journal of Economic Theory, Elsevier, vol. 107(2), pages 191-222, December.
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