Social Value of Credible Public Information

In this paper, I study the model in Morris and Shin (2002) under strategic information transmission constraints between the public authority and private agents in order to investigate how the precision of the public signal affect the quality of the communication. In the model, a central bank (CB) communicates with two private agents. All three players have different interests over the state of the economy and receive informative but noisy signals when the state is realized. I find that CB only cares about the average bias of the private agents, and CB can truthfully reveal her signal only if the average bias is below a certain threshold. More importantly, as the CB’s signal precision increases, the possibility of truthful communication increases in her signal precision which in return enhances her ability to communicate with the private agents