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Growth: Now and Forever?

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Growth: Now and Forever?

IMF,

5 min read
5 take-aways
Audio & text

What's inside?

Optimism might be a good philosophy for everyday life but not for economic forecasting.

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Editorial Rating

8

Qualities

  • Analytical
  • Eye Opening
  • Overview

Recommendation

Søren Kierkegaard, a 19th-century philosopher, put his finger on the nub of the problem facing economic forecasters and planners: “Life can only be understood backwards; but it must be lived forwards.” Working in a rapidly changing field based on imperfect knowledge of the present, economic analysts often are overly optimistic in their projections, and those inaccuracies can lead policy makers astray. getAbstract recommends this thoughtful, practical study of why economic forecasts tend toward the upside and how this error can undermine carefully made policies.

Summary

Overoptimism is a common human trait, so it’s not surprising that economic forecasters’ optimism bias leads to inflated predictions. Small differences between projected GDP growth and actual growth can become significant even over short time horizons. For example, a nation pursuing an economic plan based on GDP projections overstated by a mere 0.5% could end up with a debt-to-GDP ratio nearly twice as high as expected after 20 years. That can have dire consequences for a country’s well-being, so the extent to which ...

About the Authors

Giang Ho is an economist at the International Monetary Fund. Paolo Mauro is a senior fellow at the Peterson Institute for International Economics.


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