Optimal Information Acquisition Under Intervention

Augusto Nieto-Barthaburu

Papers from arXiv.org

Abstract: We present a model of a forecaster who must predict the future value of a variable that depends on an exogenous state and on the intervention of a policymaker. Our focus is on the incentives of the forecaster to acquire costly private information to use in his forecasting exercise. We show that the policy-making environment plays a crucial role in determining the incentives of the forecaster to acquire information. Key parameters are the expected strength of policy intervention, the precision of the policymaker's private information, and the precision of public information. We identify conditions, which are plausible in applications, under which the forecaster optimally acquires little or no private information, and instead bases his forecast exclusively on information publicly known at the time the forecast is made. Furthermore we show that, also under plausible conditions, stronger policy intervention and more precise policymaker's information crowd-out forecaster's information acquisition.

Date: 2023-12
New Economics Papers: this item is included in nep-inv and nep-mic
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