Working Paper: NBER ID: w14255
Authors: Manuel Amador; Pierre-Olivier Weill
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.
Keywords: public information; welfare; nominal prices; monetary shocks
JEL Codes: D83; E40; E58; E61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Public information about monetary shocks (E39) | Increased uncertainty about economic fundamentals (D89) |
| Increased uncertainty about economic fundamentals (D89) | Negative impact on welfare (I30) |
| Public information releases (H83) | Changes in agents' perceptions of underlying economic conditions (E32) |
| Public information releases (H83) | Different possible outcomes in the economy (multiple equilibria) (D59) |
| Public information releases (H83) | Reduced weight on private signals among households (G59) |
| Public information releases (H83) | Reduced informational efficiency of the price system (D61) |