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Cycles, Gaps, and the Social Value of Information

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  • George-Marios Angeletos
  • Luigi Iovino
  • Jennifer La'O

Abstract

What are the welfare effects of the information contained in macroeconomic statistics, central-bank communications, or news in the media? We address this question in a business-cycle framework that nests the neoclassical core of modern DSGE models. Earlier lessons that were based on "beauty contests" (Morris and Shin, 2002) are found to be inapplicable. Instead, the social value of information is shown to hinge on essentially the same conditions as the optimality of output stabilization policies. More precise information is unambiguously welfare-improving as long as the business cycle is driven primarily by technology and preference shocks--but can be detrimental when shocks to markups and wedges cause sufficient volatility in "output gaps." A numerical exploration suggests that the first scenario is more plausible.

Suggested Citation

  • George-Marios Angeletos & Luigi Iovino & Jennifer La'O, 2011. "Cycles, Gaps, and the Social Value of Information," NBER Working Papers 17229, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17229
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    References listed on IDEAS

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    Cited by:

    1. Alexandre Kohlhas, 2015. "Learning-by-Sharing: Monetary Policy and the Information Content of Public Signals," 2015 Meeting Papers 57, Society for Economic Dynamics.
    2. Tang, Jenny, 2013. "Uncertainty and the signaling channel of monetary policy," Working Papers 15-8, Federal Reserve Bank of Boston, revised 29 Apr 2015.
    3. Gaetano Gaballo, 2016. "Rational Inattention to News: The Perils of Forward Guidance," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(1), pages 42-97, January.
    4. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1438-1483.
    5. Michael Rousakis, 2013. "Expectations and Fluctuations: The Role of Monetary Policy," 2013 Meeting Papers 681, Society for Economic Dynamics.
    6. Bergemann, Dirk & Heumann, Tibor & Morris, Stephen, 2015. "Information and volatility," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 427-465.

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D6 - Microeconomics - - Welfare Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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