Learning from prices - issues of complexity

Learning is supposed to occur with public release of macroeconomic information. A public release of information with have a direct benefit of providing new information on the economy. The unemployment announcement tells us about macro well being. But there can also be indirect adverse effects on a microeconomic basis concerning the loss of efficiency from price system signals. At times, this negative effect may dominate the positive gain of public information release. This is the result of a recent paper by Manuel Amador and Pierre-Olivier Weill in the Journal of Political Economy, "Learning from Prices: Public Communication and Welfare".

A simple example may be the information contained in the unemployment numbers. Clearly, the unemployment rate is high and does not look good for economic growth prospects. However, a portion of the unemployment is not due to just poor work prospects. Some of the higher level is associated with changing demographics. The natural rate of unemployment may have increased over the last few years. An announcement that shows the unemployment rate high may actually generate confusion for the economy relative to what is being told with actual prices. For example, some labor markets are showing tightening ans survey data suggest that the economy is doing better even with the recent plateau in economic data. The unemployment rate may be sending a false signal which will cause a distorting in expectations. The information is released but but the quality is poor. A focus on single announcements can cause signalling trouble.