IDEAS home Printed from https://ideas.repec.org/p/hhs/lunewp/2010_008.html
   My bibliography  Save this paper

Growth Forecasts, Belief Manipulation and Capital Markets

Author

Listed:
  • Lundtofte, Frederik

    (Department of Economics, Lund University)

  • Leoni, Patrick

    (EUROMED Management)

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 agents: "trusting" and "distrustful." 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 "revealing" and "nonrevealing" equilibria and demonstrate that the "nonrevealing" equilibria can dominate the "revealing" equilibria in terms of ex-post social welfare.

Suggested Citation

  • Lundtofte, Frederik & Leoni, Patrick, 2010. "Growth Forecasts, Belief Manipulation and Capital Markets," Working Papers 2010:8, Lund University, Department of Economics, revised 30 May 2012.
    • Handle: RePEc:hhs:lunewp:2010_008
    as

    Download full text from publisher

    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP10_8.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Hakansson, Nils H & Kunkel, J Gregory & Ohlson, James A, 1982. "Sufficient and Necessary Conditions for Information to Have Social Value in Pure Exchange," Journal of Finance, American Finance Association, vol. 37(5), pages 1169-1181, December.
    3. repec:hoo:wpaper:e-89-7 is not listed on IDEAS
    4. Farrell, Joseph & Gibbons, Robert, 1989. "Cheap Talk with Two Audiences," American Economic Review, American Economic Association, vol. 79(5), pages 1214-1223, December.
    5. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts [‘Fiscal forecasting: The track record of the IMF, OECD and EC’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 21(47), pages 492-534.
    6. Ng, David S., 1975. "Information accuracy and social welfare under homogeneous beliefs," Journal of Financial Economics, Elsevier, vol. 2(1), pages 53-70, March.
    7. Stijn Van Nieuwerburgh & Laura Veldkamp, 2009. "Information Immobility and the Home Bias Puzzle," Journal of Finance, American Finance Association, vol. 64(3), pages 1187-1215, June.
    8. Campbell, Colin M., 2004. "Blackwell's ordering and public information," Journal of Economic Theory, Elsevier, vol. 114(2), pages 179-197, February.
    9. George-Marios Angeletos & Jennifer La’O, 2020. "Optimal Monetary Policy with Informational Frictions," Journal of Political Economy, University of Chicago Press, vol. 128(3), pages 1027-1064.
    10. 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 561-574, September.
    11. 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.
    12. Matthews, Steven A. & Okuno-Fujiwara, Masahiro & Postlewaite, Andrew, 1991. "Refining cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 55(2), pages 247-273, December.
    13. Kunkel, J Gregory, 1982. "Sufficient Conditions for Public Information to Have Social Value in a Production and Exchange Economy," Journal of Finance, American Finance Association, vol. 37(4), pages 1005-1013, September.
    14. Kohei Kawamura, 2011. "A Model of Public Consultation: Why is Binary Communication so Common?," Economic Journal, Royal Economic Society, vol. 121(553), pages 819-842, June.
    15. Lars E. O. Svensson, 2006. "Social Value of Public Information: Comment: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con," American Economic Review, American Economic Association, vol. 96(1), pages 448-452, March.
    16. 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, February.
    17. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    18. 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.
    19. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-358, March.
    20. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
    21. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    22. 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.
    23. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    24. Marshall, John M, 1974. "Private Incentives and Public Information," American Economic Review, American Economic Association, vol. 64(3), pages 373-390, June.
    25. 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, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Joan Paredes & Javier J. Pérez & Gabriel Perez Quiros, 2023. "Fiscal targets. A guide to forecasters?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 472-492, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Juan Hatchondo, 2004. "The value of information with heterogeneous agents and partially revealing prices," Econometric Society 2004 North American Summer Meetings 175, Econometric Society.
    2. Piero Gottardi & Rohit Rahi, 2014. "Value Of Information In Competitive Economies With Incomplete Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(1), pages 57-81, February.
    3. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    4. Facundo Albornoz & Joan-Maria Esteban & Paolo Vanin, 2009. "Government Information Transparency," Working Papers 392, Barcelona School of Economics.
    5. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Games and Economic Behavior, Elsevier, vol. 97(C), pages 1-18.
    6. Ruiz-Buforn, Alba & Camacho-Cuena, Eva & Morone, Andrea & Alfarano, Simone, 2021. "Overweighting of public information in financial markets: A lesson from the lab," Journal of Banking & Finance, Elsevier, vol. 133(C).
    7. Galanis, Spyros, 2016. "The value of information in risk-sharing environments with unawareness," Discussion Paper Series In Economics And Econometrics 1602, Economics Division, School of Social Sciences, University of Southampton.
    8. Ippei Fujiwara & Yuichiro Waki, 2022. "The Delphic forward guidance puzzle in New Keynesian models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 280-301, October.
    9. Campbell, Colin M., 2004. "Blackwell's ordering and public information," Journal of Economic Theory, Elsevier, vol. 114(2), pages 179-197, February.
    10. Edward E. Schlee, 2001. "The Value of Information in Efficient Risk-Sharing Arrangements," American Economic Review, American Economic Association, vol. 91(3), pages 509-524, June.
    11. Ippei Fujiwara & Yuichiro Waki, 2015. "Private news and monetary policy forward guidance or (the expected virtue of ignorance)," Globalization Institute Working Papers 238, Federal Reserve Bank of Dallas.
    12. Amihai Glazer, 2008. "Crowding Out Wasteful Activities by Wasteful Activities," Working Papers 080908, University of California-Irvine, Department of Economics.
    13. Frederik Lundtofte, 2013. "The quality of public information and the term structure of interest rates," Review of Quantitative Finance and Accounting, Springer, vol. 40(4), pages 715-740, May.
    14. Vadym Lepetyuk & Christian A. Stoltenberg, 2013. "Policy Announcements and Welfare," Economic Journal, Royal Economic Society, vol. 123, pages 962-997, September.
    15. Turdaliev, Nurlan, 2010. "Communication in repeated monetary policy games," International Review of Economics & Finance, Elsevier, vol. 19(2), pages 228-243, April.
    16. Ryan T. Ball, 2013. "Does Anticipated Information Impose a Cost on Risk‐Averse Investors? A Test of the Hirshleifer Effect," Journal of Accounting Research, Wiley Blackwell, vol. 51(1), pages 31-66, March.
    17. Colin Campbell, 2004. "Implementation and orderings of public information," Review of Economic Design, Springer;Society for Economic Design, vol. 9(1), pages 43-57, December.
    18. Krebs, Tom, 2005. "Fundamentals, information, and international capital flows: A welfare analysis," European Economic Review, Elsevier, vol. 49(3), pages 579-598, April.
    19. Goldstein, Itay & Yang, Liyan, 2019. "Good disclosure, bad disclosure," Journal of Financial Economics, Elsevier, vol. 131(1), pages 118-138.
    20. Gao, Pingyang, 2008. "Disclosure Quality, Cost of Capital, and Investors’ Welfare," MPRA Paper 9478, University Library of Munich, Germany, revised Jun 2008.

    More about this item

    Keywords

    Social welfare; information; forecasting; asset pricing; heterogeneous beliefs;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:lunewp:2010_008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prakriti Thami (email available below). General contact details of provider: https://edirc.repec.org/data/delunse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.