The Social Value of Policy Signals

37 Pages Posted: 2 Oct 2012

See all articles by Stefan Avdjiev

Stefan Avdjiev

Bank for International Settlements (BIS)

Patrick McGuire

Bank for International Settlements (BIS)

Nikola A. Tarashev

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: September 1, 2012

Abstract

Do public policy signals improve the alignment of market outcomes with economic fundamentals? Existing work contends that, when individual players have an incentive to coordinate their actions, public policy signals could steer these actions away from the fundamentals. We argue that such a conclusion rests on a restricted information structure, predicated on markets being segmented. Public policy signals are unambiguously beneficial in an integrated market, where they refine other public information that prices generate endogenously. An implication of this finding is that policy authorities have an important role to play in collecting and disseminating data on aggregate market positions.

Keywords: optimal disclosure, endogenous public signal, strategic complementarity, private information

JEL Classification: D62, D82, E58

Suggested Citation

Avdjiev, Stefan and McGuire, Patrick M. and Tarashev, Nikola A., The Social Value of Policy Signals (September 1, 2012). BIS Working Paper No. 386, Available at SSRN: https://ssrn.com/abstract=2142604

Stefan Avdjiev (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Patrick M. McGuire

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Nikola A. Tarashev

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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