Optimal Public Communication

Abstract

A benevolent planner chooses optimally whether and how to disclose publicly a private forecast of fundamentals to a large number of informed small agents. These agents interact in economic environments with information frictions, strategic complementarity or substitutability in actions, and a rich set of externalities that are responsible for inefficient fundamental and non-fundamental fluctuations. First, I characterize the optimal policy as a function of the externalities of the economy, the quality of the forecast of the planner, and agents' prior uncertainty. Next, I discuss and interpret the theoretical results within the context of an application to central bank communication.

Keywords: Bayesian persuasion, information design, central bank communication, beauty contest, incomplete information, strategic uncertainty

JEL Classification: E58, E71, E32, D83, D82