Transparency of Information and Coordination in Economies with Investment Complementarities* George-Marios Angeletos MIT and NBER

Economies with production externalities, demand spillovers, incomplete financial markets, and Keynesian frictions are only a few examples where macroeconomic complementarities play a prominent role. Within this class of economies, how does the precision of publicly provided and privately collected information affect equilibrium allocations and social welfare? And what is the optimal transparency in the information conveyed, for example, by economic statistics, policy announcements, or news in the media? To answer these questions, we consider a simple real economy where the individual return to investment is increasing in the aggregate level of investment and where market participants have heterogenous expectations about the underlying economic fundamentals (the exogenous productivity). We interpret an increase in the transparency of public information either as a reduction in the level of common uncertainty for given level of idiosyncratic uncertainty (that is, an increase in the absolute precision of public information), or as a reduction in the heterogeneity of expectations across market participants for given level of overall uncertainty (that is, an increase in the relative precision of public information). We first consider an environment where complementarities are weak so that the equilibrium is unique no matter the structure of information. Like in Morris and Shin (2002), complementarities increase the sensitivity of equilibrium allocations with respect to public information, which increases the volatility generated by common noise in market expectations. Moreover, when information is heterogeneous, an increase in the precision of public information may have the perverse effect of increasing aggregate volatility, by increasing the sensitivity of economic activity to common noise. On the contrary, an increase in the precision of private information necessarily reduces aggregate volatility. Nevertheless, we show that, as long as there is no value to lotteries, welfare unambiguously increases with an increase in either the relative or the absolute precision