IMF Working Papers

An Evaluation of World Economic Outlook Forecasts: Any Evidence of Asymmetry?

By Emrehan Aktuğ, Abolfazl Rezghi

January 31, 2025

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Format: Chicago

Emrehan Aktuğ, and Abolfazl Rezghi. "An Evaluation of World Economic Outlook Forecasts: Any Evidence of Asymmetry?", IMF Working Papers 2025, 031 (2025), accessed March 5, 2025, https://doi.org/10.5089/9798229000215.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Economic forecasting, Economic growth, Economic recession, Economic theory, Labor, Rational expectations, Unemployment rate

Keywords: Consistency of IMF, Economic recession, Evaluation of World Economic Outlook, Expectations, Forecasts with the full information rational expectations, Information Frictions, Overreaction, Rational expectations, State-dependency logic, Unemployment rate, WEO forecast

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