 An Evaluation of World Economic Outlook Forecasts: Any Evidence of Asymmetry?Emrehan Aktuğ and Abolfazl Rezghi No 2025/031, IMF Working Papers from International Monetary Fund Abstract: Using a large cross-country dataset covering over 150 countries and more than 10 macroeconomic variables, this study examines the consistency of IMF World Economic Outlook (WEO) forecasts with the full information rational expectations (FIRE) hypothesis. Similar to Consensus Economics forecasts, WEO forecasts exhibit an overreaction to news. Our analysis reveals that this overreaction is asymmetric, with more measured response to bad news, bringing forecasts closer to the FIRE benchmark. Moreover, forecasts align more closely with FIRE hypothesis during economic downturns or when a country is part of an IMF program. Overreaction becomes more pronounced for macroeconomic variables with low persistence and for forecasts over longer horizons, consistent with recent theoretical models. We also develop a model to explain how state-dependent nature of attentiveness may drive this asymmetric overreaction. Keywords: Expectations; Overreaction; Information Frictions; WEO forecast; forecasts with the full information rational expectations; evaluation of World Economic Outlook; consistency of IMF; state-dependency logic; Rational expectations; Economic recession; Unemployment rate (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2025/031 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC. |
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