Learning from Prices: Public Communication and Welfare
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.
We'd like to thank, for fruitful discussions and suggestions, George-Marios Angeletos, Andy Atkeson, Gadi Barlevy, Doireann Fitzgerald, Christian Hellwig, Narayana Kocherlakota, Nir Jaimovich, Kei Kawakami, Pat Kehoe, Ivan Werning, Randy Wright; and seminar participants at the Federal Reserve Bank of Cleveland Summer Workshops in Money, Banking and Payments, Stanford Junior Faculty Lunch, University of Pennsylvania, the Federal Reserve Bank of Minneapolis, MIT, NBER EFG Meeting, Queens University, Universite de Montreal, Washington University at St. Louis, UC Irvine, Rice University, Cal Poly, Paris X Nanterre and Paris School of Economics. We thank Marcello Miccoli for research assistance. All errors are ours. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Manuel Amador & Pierre-Olivier Weill, 2010. "Learning from Prices: Public Communication and Welfare," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 866 - 907. citation courtesy of