Learning from Prices: Public Communication and Welfare

Manuel Amador and Pierre-Olivier Weill ()

No 14255, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of releasing public information about productivity or monetary shocks when agents learn from nominal prices. While public releases have the benefit of providing new information, they can have the cost of reducing the informational efficiency of the price system. We show that, when agents have private information about monetary shocks, the cost can dominate, in that public releases increase uncertainty about fundamentals. In some cases, public releases can create or eliminate multiple equilibria. Our results are robust to adding velocity shocks, imperfectly observable prices, large idiosyncratic shocks, and introducing a bond market.

JEL-codes: D83 E40 E58 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cta and nep-mac
Date: 2008-08
Note: EFG ME
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