The small open hypothesis suggests that small open economies are crucially affected by foreign economic activity. This study compares the predictive content of traditional financial variables and foreign economic activity for forecasting GDP growth in seven European small open economies during...

We analyze the causes of the apparent bias towards optimism in growth forecasts underpinning the design of IMF-supported programs, which has been documented in the literature. We find that financial variables observable to forecasters are strong predictors of growth forecast errors. The greater...