Do Local Forecasters Have Better Information?

Benhima, Kenza and Bolliger, Elio (2022): Do Local Forecasters Have Better Information?

Abstract

Using individual inflation and GDP growth forecasts by professional forecasters for a panel of emerging and advanced economies, we provide direct evidence that foreign forecasters update their forecasts less frequently than local forecasters (about 10% less frequently) and make larger errors in absolute value (up to 9% larger). The foreign forecasters' less accurate forecasts are not due to a more irrational expectation, but to less precise information. The asymmetry is stronger at shorter horizons and when forecasting inflation. In general, the asymmetry is not stronger when forecasting is more uncertain. Taken together, our results provide a basis for disciplining international finance and trade models with heterogeneous information. On the methodological side, we provide tests that identify differences in information frictions across groups.

• Item Type: MPRA Paper
• Language: English
• Keywords: Information asymmetries; Expectation formation
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E37 - Forecasting and Simulation: Models and Applications; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General

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