Testing the rationality of DOE's energy price forecasts under asymmetric loss preferences

Emmanuel Mamatzakis and Anastasia Koutsomanoli-Filippaki

Energy Policy, 2014, vol. 68, issue C, 567-575

Abstract: This paper examines the rationality of the price forecasts for energy commodities of the United States Department of Energy's (DOE), departing from the common assumption in the literature that DOE's forecasts are based on a symmetric underlying loss function with respect to positive vs. negative forecast errors. Instead, we opt for the methodology of Elliott et al. (2005) that allows testing the joint hypothesis of an asymmetric loss function and rationality and reveals the underlying preferences of the forecaster. Results indicate the existence of asymmetries in the shape of the loss function for most energy categories with preferences leaning towards optimism. Moreover, we also examine whether there is a structural break in those preferences over the examined period, 1997–2012.

Keywords: Energy prices; Forecast errors; Loss function; Preferences (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:68:y:2014:i:c:p:567-575

DOI: 10.1016/j.enpol.2013.11.018

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