Forecasting the South African Inflation Rate: On Asymmetric Loss and Forecast Rationality
Monique Reid and
Rangan Gupta ()
No 26/2014, Working Papers from Stellenbosch University, Department of Economics
Using forecasts of the inflation rate in South Africa, we study the rationality of forecasts and the shape of forecasters’ loss function. 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 function. 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 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)
New Economics Papers: this item is included in nep-for, nep-mac and nep-mon
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Journal Article: Forecasting the South African inflation rate: On asymmetric loss and forecast rationality (2016)
Working Paper: Forecasting the South African Inflation Rate: On Asymmetric Loss and Forecast Rationality (2014)
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