Prudence and Information Rigidity of EBRD’s Growth Forecast: Quarter-Century Assessment

Abstract

This study assesses the performance of the GDP growth forecasts by European Bank for Reconstruction and Development (EBRD) for 38 countries between 1994 and 2019. It presents the following results. First, forecast performances improve over time. Second, the projections are mostly conservative, except for some countries with optimistic next-year forecasts. Third, these forecasts are broadly rational once asymmetric loss is assumed. Fourth, the magnitude of improvement in forecast performance, conservativeness, and optimism, are likely to differ across regions, common wealth status, and income levels. Fifth, information rigidity is mostly found to be present. Sixth, there is less information rigidity in the short-term horizon in more recent years, suggesting that an improvement of the EBRD’s forecasting practice and expanded information availability in the transition economies enhance its efficiency.