Informational Economic Transmission between Countries

53 Pages Posted: 22 Apr 2024 Last revised: 26 Apr 2024

See all articles by Alejandro Bernales

Alejandro Bernales

Universidad de Chile

Hriday Karnani

Universidad de Chile

Paula Margaretic

Universidad de Chile

Date Written: April 20, 2024

Abstract

Informational economic transmission is important (even after controlling for countries’ fundamental real and financial linkages), where informational connections emerge from an anomalous interdependence in agents’ beliefs about countries’ economic performance. We propose a novel measure of informational interdependence: the correlation (between countries) of analysts' GDP one-year-forecast errors. Our measure is based on a learning model, where informational transmission arise when agents learn, but over-weight information about common-factors relative to country-specific information (due to frictions in the learning process). Informational interdependence is substantial, remaining so under several validity analyses and robustness checks. Furthermore, we show considerable higher-order spillovers of economic shocks.

Keywords: Informational interdependence, spillovers, learning bias, common factors.

JEL Classification: D80, F30, F60, G14, G15.

Suggested Citation

Bernales, Alejandro and Karnani, Hriday and Margaretic, Paula, Informational Economic Transmission between Countries (April 20, 2024). Available at SSRN: https://ssrn.com/abstract=4801634 or http://dx.doi.org/10.2139/ssrn.4801634

Alejandro Bernales (Contact Author)

Universidad de Chile ( email )

Diagonal Paraguay 257
Santiago
Chile

HOME PAGE: http://www.alejandrobernales.com

Hriday Karnani

Universidad de Chile ( email )

Chile

HOME PAGE: http://https://hridaykarnani.netlify.app/

Paula Margaretic

Universidad de Chile ( email )

Facultad de Economía y Negocios
Departamento de Administración
Chile

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