online and official price indexes measuring argentina s inflation abstract prices collected from online retailers can be used to construct daily price indexes that complement official statistics this paper studies their ability to match official inflation estimates in five latin american countries with a focus on argentina where official statistics have been heavily criticized in recent years the data were collected between october 2007 and march 2011 from the largest supermarket in each country in brazil chile colombia and venezuela online price indexes approximate both the level and main dynamics of official inflation by contrast argentina s online inflation rate is nearly three times higher than the official estimate

optimal discretionary monetary policy in a model of asymmetric central bank preferences this paper considers optimal monetary policy in the context of the central bank adopting an asymmetric objective function our results show that under asymmetric preferences many of the extant results on the time consistency problem need no longer hold

bias rationality and asymmetric loss functions abstract in the literature it is a common empirical finding that survey based expectations are biased at the individual level this has sparked a large debate if forecasters have asymmetric loss functions or the rationality assumption is violated in this paper i will show that the bias can in large part be explained by the pattern of missing observations in the survey thus the assumption of asymmetric loss functions is not required to satisfy the rationality assumption

quasi and simulated likelihood approaches to censored demand systems food consumption by food stamp recipients in the united states a quasi maximum likelihood estimator is proposed and applied to a censored translog demand system for foods using a sample of food stamp recipients in the united states the procedure produces remarkably close parameter and elasticity estimates to those of the simulated maximum likelihood procedure a two step procedure is also considered but it produces different elasticities demands are found to be price elastic for pork and fish but price inelastic for all other food products gross complementarity and net substitutability are obvious but these cross price effects are much less pronounced than own price and total food expenditure effects copyright 2003 oxford university press

central bank preferences and macroeconomic equilibrium abstract we investigate the behavior of an optimizing monetary authority in an economy described by a simple as ad model we develop a simple methodology for deriving the optimal policy and the associated model solution for various forms of the authority s objectives in our empirical work we focus on one of these specifications in which the authority cares about both the rate of inflation and the level of price innovations which boost real output in our model along the lines of barro and gordon 1983b estimating the model on post war us data we find that the revealed weight on price surprises is significant but only around a third of that on inflation the estimated elasticity of output with respect to price surprises is around one quarter but statistically insignificant

measuring the time inconsistency of us monetary policy this paper offers an alternative explanation for the great inflation of the 1970s by measuring a novel source of monetary policy time inconsistency in the presence of asymmetric preferences the monetary authorities generate a systematic inflation bias through the private sector expectations of a larger policy response in recessions than in booms the estimated fed s implicit target for inflation has declined from the pre to the post volcker regime the average inflation bias was about 1 before 1979 but this has disappeared over the last two decades because the preferences on output stabilization were large and asymmetric only in the former period

asymmetries and interdependencies in time use between italian parents in recent decades changes in parents attitudes towards the importance of spending time with children to optimise their future behaviour and cognitive development have greatly affected patterns of time allocation among both working and non working parents in all developed countries we compare the two waves of the italian time use dataset 1988 and 2002 to analyze how family time allocation changed over time in a country that was undergoing a marked increase in female employment rate and a continuous decline in total fertility rate we focus especially on how parents time with their children depends on their employment status and household characteristics using a simultaneous sequential approach we consider links among the different time uses of individuals and correlations with spouses decisions we find that wives time at work time strongly influences the time spent by both spouses with their children in 2002 but not in 1988 fathers were much more involved in childcare and rearing in 2002 than in 1988 in general as women s work time increased substitutes for their childcare time were found within the household fathers or other co resident adults

the monetary policy of the european central bank the first six years of ecb monetary policy are examined using a general framework that allows central bankers to weight differently positive and negative deviations of inflation output and the interest rate from their reference values the empirical analysis on synthetic euro area data suggests that the objective of price stability is symmetric whereas the objectives of real activity and interest rate stabilizations are not output contractions imply larger policy responses than output expansions of the same size while movements in the interest rate are larger when the level of the interest rate is relatively high the hypothesis of m3 growth rate targeting is rejected

monetary policy rules in theory and in practice evidence from the uk and the us given the large amount of interaction between research on monetary policy and its practice this article examines whether some simple monetary policy rules that have been proposed in the academic literature part of which has originated from within central banks provide a reasonable characterization of actual policy in the united kingdom and the united states the article finds the simple rule that describes best the actual us monetary policy is a speed limit rule with dynamics whilst for the uk it is a forward looking rule the simpler dynamics in the uk s monetary policy rule are reflective of the lower persistence of inflation as a result of its policy of inflation targeting

monetary policy in the presence of asymmetric wage indexation we study optimal monetary policy in the presence of asymmetric wage indexation we find that the monetary authorities do not react to small output shocks and that their reaction to large shocks is asymmetric insofar as they absorb positive shocks more than negative ones as a consequence we observe that asymmetric wage indexation can be contractionary it has ambiguous effects on expected inflation and welfare relative to an equivalent symmetric indexation optimal symmetric inflation however always outperforms optimal asymmetric indexation

on the loss function of the bank of canada a note abstract based on the approach advanced by elliott et al elliott g komunjer i timmermann a 2005 estimation and testing of forecast rationality under flexible loss review of economic studies 72 1107 1125 we studied whether the inflation and output growth projections published by the bank of canada are consistent with an asymmetric loss function current year projections provide no signs of asymmetry but next year projections do the hypothesis of rationality of the projections can be rejected under symmetric loss but not under asymmetric loss

survey forecasts in brazil a prismatic assessment of epidemiology performance and determinants abstract this paper assesses the behavior of survey forecasts in brazil during the inflation targeting regime when managing expectations is one of the cornerstones of the conduct of monetary policy the distinctive database of the survey conducted by the central bank of brazil bcb among professional forecasters allows for a thorough investigation of the epidemiology determinants and performance of forecasts the main results are i top performing forecasters are influential to other forecasters ii survey forecasts perform better than vector autoregressive model based forecasts iii common forecast errors prevail over idiosyncratic components across respondents iv inflation targets play an important role in inflation expectations and v agents perceive the bcb as following a taylor rule consistent with inflation targeting the last two suggest high credibility of the monetary authority

real money balances in the production function of a developing country real money balances as a factor input in the production function of the large scale manufacturing sector in pakistan has been examined in a multi equation framework besides labor and capital real money balances turned out to be an important factor of production our results are in accordance with the pioneering work of sinai and stokes in this area

are monetary policy reaction functions asymmetric the role of nonlinearity in the phillips curve abstract this paper investigates the implications of a nonlinear phillips curve for the derivation of optimal monetary policy rules combined with a quadratic loss function the optimal policy is also nonlinear with the policy maker increasing interest rates by a larger amount when inflation or output are above target than the amount it will reduce them when they are below target specifically the main prediction of our model is that such a source of nonlinearity leads to the inclusion of the interaction between expected inflation and the output gap in an otherwise linear taylor rule we find empirical support for this type of asymmetries in the interest rate setting behaviour of four european central banks but none for the us fed

money in the production function revisited this note provides a test of whether real balances can be viewed as a factor input contrary to nguyen 1986 and sinai and stokes 1981 it is shown that real balances are a valid factor of production within the confines of a ces production function

central banks inflation forecasts under asymmetric loss evidence from four latin american countries we study the rationality of the inflation forecasts of the central banks of argentina brazil chile and mexico we reject rationality under a symmetric chile is an exception but not under an asymmetric loss function an overprediction implies a larger loss than an underprediction we also analyze alternative rationality tests growth forecasts and private sector forecasts

rationality testing under asymmetric loss abstract this paper shows that if agents have an asymmetric loss function standard empirical tests for the rationality of their expectations are in general invalid we further show that under a popular class of asymmetric loss functions the linex family a valid test can be carried out by estimating an appropriate arch in mean model the contrast between the standard test and our arch m test is illustrated using the goldsmith nagan forecasts of us treasury bill yields

evaluating federal reserve predictions of growth in consumer spending this study shows that federal reserve forecasts of growth in both total consumption and durable spending are generally rational under asymmetric loss and the forecasts of growth in nondurable services spending while unbiased biased fail to be rational yet these forecasts are all directionally accurate the forecasts of growth in total consumption durable and services spending are more less accurate in predicting the downward upward moves and are thus of value when policymakers assign more less cost to incorrect downward upward predictions the forecasts of growth in nondurable spending are equally accurate in predicting the downward and upward moves and are thus of value when policymakers assign similar cost to both incorrect downward and upward predictions utilizing survey data to measure the private forecasts we further provide partial support for the asymmetric information hypothesis that the federal reserve has useful information about the state of the economy that is not known by

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

inflation targeting under asymmetric preferences this paper develops and estimates a game theoretical model of inflation targeting where the central banker s preferences are asymmetric around the targeted rate specifically positive deviations from the target can be weighted more or less severely than negative ones in the central banker s loss function it is shown that some of the previous results derived under the assumption of symmetry are not robust to this generalization of preferences estimates of the central banker s preference parameters for canada sweden and the uk are statistically different from the one implied by the commonly used quadratic loss function

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

can money matter abstract do increases in the real money supply increase appreciably the productive capacity of the economy previous studies have estimated the output elasticity of real money to be between 0 02 and 1 0 applying these estimates to the typical annual growth of real money balances suggests that fluctuations in money account for somewhere between none and all of the fluctuation in gnp this paper develops a new estimate of the output elasticity of real balances by examining the factor share of money in national income and concludes that the output elasticity is in fact extremely small

optimal monetary policy revisited does considering us real time data change things croushore 2011 and others have noted that monetary policy may be sensitive to inconsistencies between real time data available to policy makers when making their decisions and revised data which more accurately measureeconomic performance this paper extends the asymmetric preferencemodel suggested by ruge murcia 2003 in order to focus on these inconsistencies which arise because of the long lag between the real time data release and the revised data release we focus on two related monetary policy models in both models the central banker targets a weighted average of revised and real time inflation the models differ by what the second variable is in the monetary objective function with the first model using a weighted average of revised and real time output whereas the second model uses a weighted average of revised and real time unemployment our models identify several new potential sources of inflation bias due to data revisions in addition to the ones previously suggested in the literature our empirical results suggest that the federal reserve bank mainly focuses on targeting revised data for all three variables but it does weigh real time data too as a consequence the inflation bias induced by real time data increases by 12 6 basis points on average but this figure becomes roughly twice as large at the start of recessions

optimal monetary policy with asymmetric preferences for output abstract we extend ruge murcia 2003 2004 to weigh inflation and output and show that empirical evidence supports an asymmetric preference hypothesis for output we also find evidence that the monetary authority targets potential output in parallel to barro and gordon 1983

forecast rationality tests in the presence of instabilities with applications to federal reserve and survey forecasts summary this paper proposes a framework to implement regression based tests of predictive ability in unstable environments including in particular forecast unbiasedness and efficiency tests commonly referred to as tests of forecast rationality our framework is general it can be applied to model based forecasts obtained either with recursive or rolling window estimation schemes as well as to forecasts that are model free the proposed tests provide more evidence against forecast rationality than previously found in the federal reserve s greenbook forecasts as well as survey based private forecasts it confirms however that the federal reserve has additional information about current and future states of the economy relative to market participants copyright 2015 john wiley sons ltd

asymmetric monetary policy rules in australia abstractin this study the hypothesis that the reserve bank of australia rba implements an asymmetric monetary policy rule is tested we estimate both linear and asymmetric monetary policy reaction functions for the period before inflation targeting was adopted for the period when inflation targeting was explicitly adopted and for the full sample period the results of the linear monetary policy rules are consistent with the estimates reported from other studies that estimate linear monetary policy rules for australia on the other hand the results of estimating the asymmetric monetary policy rules for the pre inflation targeting period shows that the rba had reacted symmetrically suggesting that it had acted with the same aggressiveness towards both inflation and output gaps of the same magnitude over both phases of the business cycle however for the inflation targeting period the results show that the rba had reacted asymmetrically in its policy response to the inflation gap output gap or both

robust monetary policy structural breaks and nonlinearities in the reaction function of the central bank of brazil abstract in this work we seek to investigate the existence of nonlinearities in the reaction function of the central bank of brazil arising from this policymaker s uncertainties about the effects of the output gap on inflation theoretically we follow tillmann 2011 to obtain a nonlinear optimal monetary policy rule that is robust to uncertainty about the output inflation trade off of the phillips curve in addition we perform structural break tests to assess possible changes in the conduct of the brazilian monetary policy during the inflation targeting regime the results indicate that i the uncertainties about the slope in the phillips curve implied nonlinearities in the central bank of brazil s reaction function ii we cannot reject the hypothesis of a structural break in the monetary rule parameters occurring in the third quarter of 2003 iii there was an increase in the response of the selic rate to output gap and a weaker response to the current inflation gap in meirelles tombini s administration and iv the central bank of brazil has also reacted to the exchange rate in meirelles tombini s administration

testing for asymmetries in the preferences of the euro area monetary policymaker this article tests for asymmetries in the preferences of the euro area monetary policymaker with 1995 1 2005 2 data from the latest update of the european central bank s ecb s area wide database following the relevant literature we distinguish between three types of asymmetry precautionary demand for expansions precautionary demand for price stability and interest rate smoothing asymmetry based on the joint generalized method of moments gmm estimation of the euler equation of optimal policy and the aggregate supply aggregate demand as ad structure of the macroeconomy we find evidence of precautionary demand for price stability in the preferences revealed by the monetary policymaker this type of asymmetry is consistent with the ecb s definition of price stability and with the priority of credibility building by a recently created monetary authority 1cempre centro de estudos macroeconomicos e previsao is a research centre supported by the fundacao para a ciencia e a tecnologia portugal whi

can the fed predict the state of the economy abstract we show that systematic forecast errors reveal that the fed is surprised by real and inflationary cycles the fed knows the state of the economy for the current quarter but cannot predict it one quarter ahead

distinguished lecture on economics in government what central bankers could learn from academics and vice versa academic writing about monetary policy has been useful to practical central bankers but more of certain aspects of the economists way of thinking could profitably be imported on the other hand academics could improve their analysis and make it more useful to policymakers if they would pay more attention to certain real world aspects of monetary policy the author draws on his experience at the federal reserve board to point out a number of specific lessons for each side

does the reserve bank of australia follow a forward looking nonlinear monetary policy rule abstractthe conventional monetary policy rule describes a simple linear relationship between the domestic interest rate inflation rate and output gap an important extension to this rule is to inc

evaluating rationality of level and growth rate forecasts of direct tax revenues under flexible loss function evidence from swiss cantons abstract we explore the rationality of tax revenue forecasts in swiss cantons under asymmetric loss functions we find evidence of asymmetric losses for the level forecasts but not for growth rates allowing for asymmetric losses alters the outcome of rationality tests for the level forecasts

biases in macroeconomic forecasts irrationality or asymmetric loss empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational we establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric we quantify the exact trade off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case an empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss

are statistical reporting agencies getting it right data rationality and business cycle asymmetry this article provides new evidence on the rationality of early releases of industrial production ip and producer price index ppi data rather than following the usual practice of examining only first available and fully revised data we examine the entire revision history for each variable thus we are able to assess for example whether earlier releases of data are in any sense less rational than later releases and when data become rational our findings suggest that seasonally unadjusted ip and ppi become rational after approximately 3 4 months whereas seasonally adjusted versions of these series remain irrational for at least 6 12 months after initial release for all variables examined we find evidence that the remaining revision is predictable from its own past or from publicly available information in other economic and financial variables in addition we find a clear increase in the volatility of revisions during recessions suggesting that early data releases are less reliable in toughe

nonlinearity in the fed s monetary policy rule this paper investigates the nature of nonlinearities in the monetary policy rule of the us fed using the flexible approach of hamilton 2001a we find that while there is significant evidence of nonlinearity for the period to 1979 there is little such evidence for the subsequent period possible asymmetries in the fed s reactions to inflation deviations from target and the output gap in the 1960s and 70s may tell part of the story but do not capture the entire nature of the nonlinearity the inclusion of the interaction between inflation deviations and the output gap as recently proposed appears to characterize the nonlinear policy rule more adequately

uncovering financial markets beliefs about inflation targets this paper exploits the term structure of interest rates to develop testable economic restrictions on the joint process of long term interest rates and inflation when the latter is subject to a targeting policy by the central bank in an empirical application to the canadian inflation target zone results indicate that financial markets perceive the band to be of approximately the same width as announced but asymmetrically distributed around the official target this finding suggests that in practice the monetary authority might attach different weights to positive and negative inflation deviations from the target copyright 2000 john wiley sons ltd

an assessment on the quality of china s preliminary data of quarterly gdp announcements abstractthis article examines the quality of china s preliminary announcements of the quarterly gdp we modify the tests for unbiasedness and efficiency by incorporating the fourier approximation to capture the effect of the state of the economy and employing the kiefer vogelsang and bunzel kvb approach developed by kvb in 2000 to reconstruct the tests to improve the finite sample properties the results show that 1 there is no enough evidence to support that the preliminary and first revised data are unbiased and efficient 2 there exist systematic errors related to the state of the economy and hence information about the state of the economy was not incorporated into the gdp data furthermore we find that there is a possibility that these systematic errors associated with the stages of the business cycle may offset each other and there is also a possibility that there exist offsetting errors in the underlying components of gdp

assessing the prudence of economic forecasts in the eu we estimate the eu commission loss preferences for major economic forecasts of 12 member states based on a recently proposed method by elliott komunjer and timmermann 2005 the paper provides evidence of asymmetries in the underlying forecast loss preference of the commission that tend to vary across member states in some cases our results show that eu forecasts tend to display a rather optimistic picture for main economic variables e g government balance thus allowing a certain degree of leeway in the fiscal adjustment path towards the medium term objective of close to balance or in surplus of the recently revised stability and growth pact over the period of our sample 1970 2004 this apparent asymmetry in the underlying loss preferences tends to deter prudent advice over economic policy lastly we provide an analysis on the trade off between loss and distribution asymmetries for which simulation results show that the testing method is robust in the presence of skewness copyright 2009 john wiley sons ltd

parental child care in single parent cohabiting and married couple families time diary evidence from the united kingdom the time that parents spend caring for their children is a topic of intense interest among researchers policymakers and parents themselves parental inputs of time are enormously valuable investments in children s well being and development however the declining prevalence of two parent married couple families and the steady influx of mothers into the labor market are generally believed to have placed these investments at risk we use time diary data from the united kingdom 2000 time use study uktus to investigate how parents time spent in child care differs with their marital status and other characteristics unlike previous economic studies which have analyzed alternative child care activities but only among two parent families e g peter kooreman and arie kapteyn 1987 daniel hallberg and anders klevmarken 2003 we examine differences among married cohabiting and single parent families the household production model indicates that single parent households may differ from married and cohabiting households either because there are fewer time resources or because there are fewer opportunities for economies of scale or specialization in household activities gary becker 1985 if marital relationships are more stable than cohabiting relationships the type of union may matter

evaluating japanese corporate executives forecasts under an asymmetric loss function abstract we examine asymmetry in the loss function of japanese corporate executives in their output growth forecasts and test for rationality of the forecasts under the assumption of a possibly asymmetric loss function we find evidence of asymmetry and support for rationality under an asymmetric loss function

forecast uncertainty and the taylor rule abstract in this paper we derive a modification of a forward looking taylor rule by integrating two variables that measure the uncertainty of inflation and gdp growth forecasts into an otherwise standard new keynesian model we show that certainty equivalence in new keynesian models is a consequence of log linearization and that a second order taylor approximation leads to a reaction function that includes the uncertainty of macroeconomic expectations to test the model empirically we use the standard deviation of individual forecasts around the median consensus forecast as a proxy for forecast uncertainty our sample covers the euro area the united kingdom and the united states for the period 1990q1 2016q4 we find that the bank of england and the european central bank have a significantly negative reaction to inflation forecast uncertainty our findings also reveal that the federal reserve bank of england lowers raises its interest rate in response to higher gdp growth forecast uncertainty we conclude by offering some implications for optimal monetary policy rules and central bank watchers

is the fed s news perception different from the private sector s the recent literature on monetary policy has dedicated considerable attention to modelling agents processing of information about the future in real time this paper contributes to this growing st

does self fulfilment of the inflation expectation exist abstractthis study examines the causal relationship between the actual and expected inflation in the u s using the bootstrap granger full sample causality test and sub sample rolling window estimation test to illustrate the self fulfilment of inflation expectations the full sample result indicates that there is a bidirectional causality between the actual and expected inflation showing the possibility of self fulfilment of inflation expectations which illustrates that inflation is driven by inflation expectation however considering structural changes in two series we find that the short run causal nexus between the actual and expected inflation using full sample data are fraudulent by adopting a time varying rolling window approach to revisiting the dynamic causal relationships this article identifies that the actual inflation has both positive and negative impacts on the expected inflation in distinct sub periods nevertheless inflation expectation exerts only negative effects on the actual inf

the fed s monetary policy rule and u s inflation the case of asymmetric preferences abstract this paper investigates the empirical relevance of a new framework for monetary policy analysis in which the decision makers are allowed but not required to weight differently positive and negative deviations of inflation and output from the target values the estimates of the central bank s euler equation indicate that the preferences of the fed had been asymmetric only before 1979 with the interest rate response to output contractions being larger than the response to output expansions of the same magnitude we show that this asymmetry on output implied an average inflation bias around 1 5 while the implicit inflation target also declined the asymmetric preferences induced inflation bias appears to account for a sizable fraction of the historical decline in the inflation mean

the fomc versus the staff where can monetary policymakers add value a key issue in monetary policymaking is the appropriate division of labor between the profes sional staff of the central bank and the appointed policymakers lars e o svensson 1999 argues that the appropriate role of a policymaking group such as the federal open market com mittee fomc in the united states is to make judgments about social welfare taking as given the likely outcomes of different policies as esti mated by the staff in this division the staff is relied upon to assess current and prospective economic conditions and to forecast the effects of different policies policymakers only role is to decide which of the various options should be chosen

the rationality of usda forecasts under multivariate asymmetric loss a large number of previous studies suggest that many usda forecasts are biased and or inefficient these findings however may be the result of the assumed loss function of usda forecasters we test the rationality of the usda net cash income forecasts and the wasde production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non separable forecast errors our results provide robust evidence that usda forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under or overprediction as a result this study provides an alternate interpretation of previous findings of forecast irrationality

testing asymmetries in central bank preferences in a small open economy a study for brazil abstract in this paper we extend surico s 2007a model to an open economy and test if the brazilian central bank s loss function is asymmetric with regard to positive and negative deviations of the output gap and of the inflation rate from its target furthermore we use tests for structural breaks to investigate changes in the conduct of policy and monetary authority s preferences the results revealed that the central bank reacted more strongly to deviations of inflation from the target and the output gap after 2003 with regard to the monetary authority s preferences estimates indicate only an asymmetric preference over an above target inflation rate until mid 2003 after this period the evidence obtained by estimating the reaction function with inflation expectations showed that the central bank has been more averse to positive deviations of inflation from its target

inflation targeting credibility and non linear taylor rules abstract in this paper we systematically evaluate how central banks respond to deviations from the inflation target we present a stylized new keynesian model in which agents inflation expectations are sensitive to deviations from the inflation target to re establish credibility monetary policy under discretion sets higher interest rates today if average inflation exceeded the target in the past moreover the central bank responds non linearly to past inflation gaps this is reflected in an additional term in the central bank s instrument rule which we refer to as the credibility loss augmenting a standard taylor 1993 rule with the latter term we provide empirical evidence for the interest rate response for a sample of five inflation targeting it economies we find first that past deviations from it feed back into the reaction function and that this influence is economically meaningful deterioration in credibility ceteris paribus forces central bankers to undertake larger interest rate steps second we detect an asymmetric reaction to positive and negative credibility losses with the latter dominating the former

estimation and testing of forecast rationality under flexible loss in situations where a sequence of forecasts is observed a common strategy is to examine rationality conditional on a given loss function we examine this from a different perspective supposing that we have a family of loss functions indexed by unknown shape parameters then given the forecasts can we back out the loss function parameters consistent with the forecasts being rational even when we do not observe the underlying forecasting model we establish identification of the parameters of a general class of loss functions that nest popular loss functions as special cases and provide estimation methods and asymptotic distributional results for these parameters this allows us to construct new tests of forecast rationality that allow for asymmetric loss the methods are applied in an empirical analysis of imf and oecd forecasts of budget deficits for the g7 countries we find that allowing for asymmetric loss can significantly change the outcome of empirical tests of forecast rationality