Informational Economic Transmission between Countries

Abstract

Informational economic transmission is important (even after controlling for countries’ fundamental real and financial linkages), where the informational interdependence emerges from anomalous co-movements in agents’ beliefs about the economic performance between countries. We propose a novel measure of informational interdependence, the correlation (between countries) of analysts’ GDP one-year-forecast errors, which is based on a stylized learning model, where informational links arise when agents over-weight the information precision about common-factors (due to learning costs and category-learning). We find that the informational interdependence changes during crises and between economies from different country-categories. Furthermore, we show substantial higher-order spillover amplifications of economic shocks.