Informational economic transmission between countries

Alejandro Bernales; Hriday Karnani; Paula Margaretic

doi:10.1016/j.red.2025.101302

Informational economic transmission between countries

Alejandro Bernales
, Hriday Karnani
, Paula Margaretic

Research output: Contribution to journal › Article › peer-review

Abstract

Informational economic transmission is crucial even after accounting for countries' fundamental real and financial connections. Informational connections emerge from anomalous interdependence in agents' beliefs about countries' economic activity. We propose measuring this interdependence through the correlation (between countries) of analysts' one-year forecast errors about countries' economic performance. Our measure is based on a learning model in which informational transmission occurs when agents incorrectly assess the quality of new information regarding common factors that affect multiple countries simultaneously, due to learning frictions. Informational interdependence remains substantial under various validity analyses and robustness checks, and after addressing endogeneity concerns in several dimensions. Additionally, we demonstrate considerable higher-order spillovers of economic shocks.

Original language	English
Article number	101302
Journal	Review of Economic Dynamics
Volume	58
DOIs	https://doi.org/10.1016/j.red.2025.101302
State	Published - Oct 2025
Externally published	Yes

Keywords

Common factors
Correlation of forecast errors
Informational interdependence
Learning bias
Spatial econometric model

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10.1016/j.red.2025.101302

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title = "Informational economic transmission between countries",

abstract = "Informational economic transmission is crucial even after accounting for countries' fundamental real and financial connections. Informational connections emerge from anomalous interdependence in agents' beliefs about countries' economic activity. We propose measuring this interdependence through the correlation (between countries) of analysts' one-year forecast errors about countries' economic performance. Our measure is based on a learning model in which informational transmission occurs when agents incorrectly assess the quality of new information regarding common factors that affect multiple countries simultaneously, due to learning frictions. Informational interdependence remains substantial under various validity analyses and robustness checks, and after addressing endogeneity concerns in several dimensions. Additionally, we demonstrate considerable higher-order spillovers of economic shocks.",

keywords = "Common factors, Correlation of forecast errors, Informational interdependence, Learning bias, Spatial econometric model",

author = "Alejandro Bernales and Hriday Karnani and Paula Margaretic",

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year = "2025",

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doi = "10.1016/j.red.2025.101302",

language = "English",

volume = "58",

journal = "Review of Economic Dynamics",

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AU - Bernales, Alejandro

AU - Karnani, Hriday

AU - Margaretic, Paula

PY - 2025/10

Y1 - 2025/10

N2 - Informational economic transmission is crucial even after accounting for countries' fundamental real and financial connections. Informational connections emerge from anomalous interdependence in agents' beliefs about countries' economic activity. We propose measuring this interdependence through the correlation (between countries) of analysts' one-year forecast errors about countries' economic performance. Our measure is based on a learning model in which informational transmission occurs when agents incorrectly assess the quality of new information regarding common factors that affect multiple countries simultaneously, due to learning frictions. Informational interdependence remains substantial under various validity analyses and robustness checks, and after addressing endogeneity concerns in several dimensions. Additionally, we demonstrate considerable higher-order spillovers of economic shocks.

AB - Informational economic transmission is crucial even after accounting for countries' fundamental real and financial connections. Informational connections emerge from anomalous interdependence in agents' beliefs about countries' economic activity. We propose measuring this interdependence through the correlation (between countries) of analysts' one-year forecast errors about countries' economic performance. Our measure is based on a learning model in which informational transmission occurs when agents incorrectly assess the quality of new information regarding common factors that affect multiple countries simultaneously, due to learning frictions. Informational interdependence remains substantial under various validity analyses and robustness checks, and after addressing endogeneity concerns in several dimensions. Additionally, we demonstrate considerable higher-order spillovers of economic shocks.

KW - Common factors

KW - Correlation of forecast errors

KW - Informational interdependence

KW - Learning bias

KW - Spatial econometric model

UR - https://www.scopus.com/pages/publications/105016488244

U2 - 10.1016/j.red.2025.101302

DO - 10.1016/j.red.2025.101302

M3 - Article

AN - SCOPUS:105016488244

SN - 1094-2025

VL - 58

JO - Review of Economic Dynamics

JF - Review of Economic Dynamics

M1 - 101302

ER -

Informational economic transmission between countries

Abstract

Keywords

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