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When Should Policymakers Make Announcements?

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  • Ricardo Reis

    (Columbia University)

Abstract

If a policymaker learns today that there will be a regime change in the future that affects everyone, at what time between now and then should he/she announce it to the public? This paper presents a dynamic model where agents that have a limited amount of attention to allocate between learning about the new regime and everything else. They trade off the benefit of being better informed and making better decisions when the new regime arrives against the cost of paying less attention to current events and making worse decisions now. By choosing when to make the announcement, the policymaker can affect this decision. The policymaker also takes into account that later announcements are more precise, and that agents may inefficiently put too much weight on public signals due to strategic complementarities. I solve for the optimal timing of announcements and the conditions under which it is optimal to keep mum in spite of public interest. As a by-product, I characterize the life-cycle of attention following an announcement, before and after the regime changes.

Suggested Citation

  • Ricardo Reis, 2011. "When Should Policymakers Make Announcements?," 2011 Meeting Papers 122, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:122
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    File URL: https://economicdynamics.org/meetpapers/2011/paper_122.pdf
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    References listed on IDEAS

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    9. 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.
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    12. repec:pri:cepsud:161blinder is not listed on IDEAS
    13. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
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    Cited by:

    1. Luo, Yulei, 2015. "Robustly Strategic Consumption-Portfolio Rules with Informational Frictions," MPRA Paper 64312, University Library of Munich, Germany.
    2. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    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. Luo, Yulei & Young, Eric, 2013. "Rational Inattention in Macroeconomics: A Survey," MPRA Paper 54267, University Library of Munich, Germany.
    5. Luo, Yulei, 2014. "Strategic Consumption-Portfolio Rules and Precautionary Savings with Informational Frictions," MPRA Paper 58077, University Library of Munich, Germany.

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