Tuesday, May 5, 2009

Information Flows Up

It's amusing that Nouriel Roubini and Matthew Richardson dismiss the (leaked) forecasts in the stress test as not credible because they're not as dire as forecasts from the IMF and Roubini's RGE Monitor. Treasury and the Fed had access to more information about banks' balance sheets in conducting the stress tests than the IMF or RGE Monitor could ever dream of. If the stress test estimates that U.S. banks will suffer lower losses on loans and securities than the IMF or RGE Monitor estimates, then it's far more likely that the IMF and RGE Monitor's estimates are too high, seeing as Treasury and the Fed were working with vastly superior information.

3 comments:

Anonymous said...

Yes, but maybe we don't trust that they are trying to understate the problem?

The recent UK budget forecast some pretty rosy numbers for 2010 and they should know better than anyone else how much they are going to tax/spend...

Anonymous said...

Vastly superior information means vast room for discretionary disclosure. There is a whole area of research called "economics of asymmetric information" that deals with all sorts of distortions and misallocations arising from such asymmetries. From that point of view, I'm afraid the original post sounds a bit too naive.

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