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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2010:8:
Growth Forecasts, Belief Manipulation and Capital Markets

Frederik Lundtofte () and Patrick Leoni ()

Abstract: We analyze how a benevolent, privately-informed government agency would optimally release information about the economy's growth rate when the agents hold heterogeneous beliefs. We model two types of agents: "trusting" and "distrustful." The former has a prior that is identical to that of the government agency, whereas the latter has a prior that differs from that of the government agency. We identify both "revealing" and "nonrevealing" equilibria and demonstrate that the "nonrevealing" equilibria can dominate the "revealing" equilibria in terms of ex-post social welfare.

Keywords: Social welfare; information; forecasting; asset pricing; heterogeneous beliefs; (follow links to similar papers)

JEL-Codes: D83; G11; G12; (follow links to similar papers)

39 pages, July 31, 2010, Revised May 30, 2012

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