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Knut Wicksell Centre for Financial Studies, Lund University Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University

No 2013/15:
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 agent: "conforming" and "dissenting." 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 informative and uninformative equilibria and demonstrate that the uninformative equilibria can dominate the informative ones 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)

45 pages, September 13, 2013

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