蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
On the Macroeconomic Consequences of Over-Optimism
蝌蚪网 Journal: Macroeconomics
(pp. 38–59)
(Complimentary)
Abstract
Analyzing International Monetary Fund (IMF) data, we find that overly optimistic growth expectations for a country induce economic contractions a few years later. To isolate the causal effect, we take an instrumental variable approach鈥攅xploiting randomness in the country allocation of IMF mission chiefs. We first document that IMF mission chiefs differ in their individual degrees of forecast optimism, yielding quasi-experimental variation in the degree of forecast optimism at the country level. The mechanism appears to run through excessive accumulation of debt (public and private). Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects.Citation
Beaudry, Paul, and Tim Willems. 2022. "On the Macroeconomic Consequences of Over-Optimism." 蝌蚪网 Journal: Macroeconomics 14 (1): 38–59. DOI: 10.1257/mac.20190332Additional Materials
JEL Classification
- C53 Forecasting Models; Simulation Methods
- E23 Macroeconomics: Production
- E27 Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
- E32 Business Fluctuations; Cycles
- F33 International Monetary Arrangements and Institutions
- H63 National Debt; Debt Management; Sovereign Debt