Working Paper: NBER ID: w17229
Authors: Georgemarios Angeletos; Luigi Iovino; Jennifer Lao
Abstract: What are the welfare effects of the information contained in macroeconomic statistics, central-bank communications, or news in the media? We address this question in a business-cycle framework that nests the neoclassical core of modern DSGE models. Earlier lessons that were based on "beauty contests" (Morris and Shin, 2002) are found to be inapplicable. Instead, the social value of information is shown to hinge on essentially the same conditions as the optimality of output stabilization policies. More precise information is unambiguously welfare-improving as long as the business cycle is driven primarily by technology and preference shocks--but can be detrimental when shocks to markups and wedges cause sufficient volatility in "output gaps." A numerical exploration suggests that the first scenario is more plausible.
Keywords: Welfare Effects; Information; Macroeconomic Statistics; Business Cycles
JEL Codes: C7; D6; D8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| more precise information (Y50) | welfare improvement (I38) |
| technology and preference shocks (O33) | welfare improvement (I38) |
| shocks to markups and wedges (D43) | negative effect on welfare (I38) |
| mean level of market distortions (D43) | negative effect on welfare (I38) |
| optimality of flexible-price allocations (D61) | welfare effects of information (D83) |
| technology shocks (D89) | positive social value of information (D83) |