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The Social Value of Policy Signals

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  • Stefan Avdjiev
  • Patrick McGuire

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.

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  • Stefan Avdjiev & Patrick McGuire, 2012. "The Social Value of Policy Signals," BIS Working Papers 386, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:386
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    References listed on IDEAS

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    Cited by:

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    2. Giese, Julia & Nelson, Benjamin & Tanaka, Misa & Tarashev, Nikola, 2013. "Financial Stability Paper No 21: How could macroprudential policy affect financial system resilience and credit? Lessons from the literature," Bank of England Financial Stability Papers 21, Bank of England.
    3. Anna Bayona, 2018. "The social value of information with an endogenous public signal," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 1059-1087, December.

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