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Forecasting the South African inflation rate: On asymmetric loss and forecast rationality

Christian Pierdzioch, Monique Reid and Rangan Gupta ()

Economic Systems, 2016, vol. 40, issue 1, 82-92

Abstract: Using forecasts of the inflation rate in South Africa, we study the rationality of forecasts and the shape of forecasters’ loss functions. When we study micro-level data of individual forecasts, we find mixed evidence of an asymmetric loss function, suggesting that inflation forecasters are heterogeneous with respect to the shape of their loss functions. We also find strong evidence that inflation forecasts are in line with forecast rationality. When we pool the data and study sectoral inflation forecasts of financial analysts, trade unions and the business sector, we find evidence for asymmetry in the loss function and against forecast rationality. Upon comparing the micro-level results with those for pooled and sectoral data, we conclude that forecast rationality should be assessed based on micro-level data, and that freer access to this data would allow a more rigorous analysis and discussion of the information content of the surveys.

Keywords: Inflation rate; Forecasting; Loss function; Rationality (search for similar items in EconPapers)
JEL-codes: C53 D82 E37 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Forecasting the South African Inflation Rate: On Asymmetric Loss and Forecast Rationality (2014)
Working Paper: Forecasting the South African Inflation Rate: On Asymmetric Loss and Forecast Rationality (2014) Downloads
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DOI: 10.1016/j.ecosys.2015.08.004

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