Rationality of inflation-output forecasts of MMS survey: international evidence

Yasemin Ulu

Applied Economics, 2015, vol. 47, issue 12, 1187-1198

Abstract: We analyse the individual rationality of inflation and output forecasts from Money Market Survey (MMS) for a group of G7 countries and EU under asymmetric univariate Linlin and Linex loss functions. We also test for joint rationality of inflation-output forecasts using the forecast rationality test under multivariate asymmetric loss functions proposed by Ulu (2013). Our results indicate that rationality is often rejected under symmetric loss, and results improve towards rationality when asymmetric loss functions are assumed. The assumption of multivariate asymmetric loss compared to univariate asymmetric loss provides further evidence towards rationality. We also analyse directional forecast accuracy of the inflation and output forecasts and find that the inflation-output forecasts of MMS are valuable when considered both jointly and separately.

Date: 2015
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DOI: 10.1080/00036846.2014.990619

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