Scandinavian Working Papers in Economics

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

No 2013/15: Growth Forecasts, Belief Manipulation and Capital Markets

Frederik Lundtofte () and Patrick Leoni
Additional contact information
Frederik Lundtofte: Department of Economics and Knut Wicksell Centre for Financial Studies, Lund University
Patrick Leoni: Kedge Business School, Postal: Kedge Business School, Domaine de Luminy BP 921, 13 288 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 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

JEL-codes: D83; G11; G12

45 pages, September 13, 2013

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