How Good are Economic Growth Forecasts?

J. DANIEL AROMÍ

Tucumán

Congreso; Reunión Anual de la AAEP; 2016

AAEP

A novel sentiment metric together with a growth acceleration indicator are used to evaluate the response of growth forecasts to information flows. The empirical analysis shows that information flows are systematically associated to subsequent errors in six-year-ahead forecasts. A one standard deviation increment in the combined indicator anticipates, on average, a 4.9% increment in the difference between expected and realized growth. The association is verified for different periods and different country groups. The documented overreactions are consistent with economic agents that use simple but imperfect rules when it comes to adjusting expectations.