GDP growth forecasts and information flows: Is there evidence of overreactions?

The association between GDP growth forecasts and past information flows is evaluated for a sample of 49 countries during the period 1990–2014. The analysis exploits an extensive collection of forecasts available through IMF's historical database. The empirical results indicate a robust association between information arrival and subsequent mean forecast errors (the average difference between forecast and realization). Consistent with the overreaction hypothesis, more positive information is followed by higher mean forecast errors. The association is documented for multiple metrics of past information flows: growth performance, a novel metric of press sentiment, and lagged forecast errors. When advanced and emerging economies are differentiated, the regularity is detected for both groups but is stronger in the case of emerging economies.