Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

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

Frederik Lundtofte () and Patrick Leoni ()
Additional contact information
Frederik Lundtofte: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Patrick Leoni: EUROMED Management, Postal: Domaine de Luminy - BP 921, F-13288 Marseille Cedex 9, France

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

JEL-codes: D83; G11; G12

39 pages, First version: July 31, 2010. Revised: May 30, 2012.

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WP10_8.pdf PDF-file 

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