A Note on Forecasting the Euro: Do Forecasters Have an Asymmetric Loss Function?
Ulrich Fritsche (),
Jan-Christoph Rülke and
International Economic Journal, 2014, vol. 28, issue 2, 333-343
Based on the approach advanced by Elliott, Komunjer, and Timmermann (2005), we analyzed whether the loss function of a sample of exchange-rate forecasters is asymmetric in the forecast error. Using forecasts of the dollar/euro exchange rate, we found that the shape of the loss function varies across forecasters. Some forecasters appear to make forecasts under an asymmetric loss function, while a symmetric loss function seems to describe well the loss function of other forecasters. Accounting for an asymmetric loss function does not necessarily make forecasts 'look' rational.
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