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On the Sources and Value of Information: Public Announcements and Macroeconomic Performance

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  • David P. Myatt
  • Chris Wallace

Abstract

In the context of macroeconomic coordination, studies of the social value of information distinguish sharply between private and public information. However, no information is truly public (that is, common knowledge) or private in the established sense. This paper develops a general approach by allowing for many informative signals each of which incorporates elements of both public and private information. A measure of relative publicity determines a signal's equilibrium use and its social value. Output gaps (and hence social losses) arise when signals differ in their publicity: such differences drive a wedge between price-formation and expectations-formation processes. Turning to the effect of public announcements, and contrary to previous results, it is never socially optimal to withhold information completely, nor is it optimal to release perfectly public (or, indeed, perfectly private) information. Instead, when perfect communication is feasible, limited clarity enhances macroeconomic performance.

Suggested Citation

  • David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:411
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper411.pdf
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    Citations

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    Cited by:

    1. George-Marios Angeletos & Luigi Iovino & Jennifer La'O, 2011. "Cycles, Gaps, and the Social Value of Information," Levine's Working Paper Archive 786969000000000293, David K. Levine.
    2. Camille Cornand & Frank Heinemann, 2015. "Limited higher order beliefs and the welfare effects of public information," Journal of Economic Studies, Emerald Group Publishing, vol. 42(6), pages 1005-1028, November.
    3. Camille Cornand & Frank Heinemann, 2014. "Measuring agents’ reaction to private and public information in games with strategic complementarities," Experimental Economics, Springer;Economic Science Association, vol. 17(1), pages 61-77, March.
    4. Martimort, David & Stole, Lars, 2011. "Aggregate Representations of Aggregate Games," MPRA Paper 32871, University Library of Munich, Germany.
    5. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1438-1483.
    6. Alia Gizatulina, 2013. "Wondering How Others Interpret It: Social Value of Public Information," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2013_08, Max Planck Institute for Research on Collective Goods.
    7. Hüning, Hendrik & Meub, Lukas, 2016. "Optimal public information dissemination: Introducing multiplier effects into a generalized beauty contest," Center for European, Governance and Economic Development Research Discussion Papers 260 [rev.], University of Goettingen, Department of Economics.
    8. Martimort, David & Stole, Lars, 2011. "The Collective Wisdom of Beauty Contests," MPRA Paper 32872, University Library of Munich, Germany.
    9. Alia Gizatulina, 2012. "Interpreting How Others Interpret It: Social Value of Public Information," CESifo Working Paper Series 3787, CESifo Group Munich.
    10. Venky Venkateswaran & Luis Llosa, 2012. "Efficiency With Endogenous Information Choice," 2012 Meeting Papers 660, Society for Economic Dynamics.
    11. Chen, Heng & Luo, Yulei & Pei, Guangyu, 2014. "Too Much of a Good Thing: Attention Misallocation and Social Welfare in Coordination Games," MPRA Paper 59139, University Library of Munich, Germany.

    More about this item

    Keywords

    Beauty Contests; Island Economies; Coordination; Public and Private Signals; Public Announcements;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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