Cycles, Gaps, and the Social Value of Information

47 Pages Posted: 16 Jul 2011 Last revised: 29 Jan 2023

See all articles by George-Marios Angeletos

George-Marios Angeletos

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Luigi Iovino

Massachusetts Institute of Technology (MIT)

Jennifer La'O

University of Chicago - Booth School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 2011

Abstract

What are the welfare effects of the information contained in macroeconomic statistics, central-bank communications, or news in the media? We address this question in a business-cycle framework that nests the neoclassical core of modern DSGE models. Earlier lessons that were based on "beauty contests" (Morris and Shin, 2002) are found to be inapplicable. Instead, the social value of information is shown to hinge on essentially the same conditions as the optimality of output stabilization policies. More precise information is unambiguously welfare-improving as long as the business cycle is driven primarily by technology and preference shocks--but can be detrimental when shocks to markups and wedges cause sufficient volatility in "output gaps." A numerical exploration suggests that the first scenario is more plausible.

Suggested Citation

Angeletos, George-Marios and Iovino, Luigi and La'O, Jennifer, Cycles, Gaps, and the Social Value of Information (July 2011). NBER Working Paper No. w17229, Available at SSRN: https://ssrn.com/abstract=1886915

George-Marios Angeletos (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-251b
Cambridge, MA 02142
United States
617-452-3859 (Phone)
617-253-1330 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Luigi Iovino

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Jennifer La'O

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
31
Abstract Views
531
PlumX Metrics