State dependent asymmetric loss and the consensus forecast of real U.S. GDP growth

Higgins, Matthew and Mishra, Sagarika 2014, State dependent asymmetric loss and the consensus forecast of real U.S. GDP growth, Economic modelling, vol. 38, pp. 627-632.

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Title State dependent asymmetric loss and the consensus forecast of real U.S. GDP growth
Author(s) Higgins, Matthew
Mishra, Sagarika
Journal name Economic modelling
Volume number 38
Start page 627
End page 632
Total pages 6
Publisher Elsevier BV
Place of publication Amsterda, The Netherlands
Publication date 2014
ISSN 0264-9993
Keyword(s) Time-varying bias
Survey forecasts
Asymmetric loss
Summary It has been well documented that the consensus forecast from surveys of professional forecasters shows a bias that varies over time. In this paper, we examine whether this bias may be due to forecasters having an asymmetric loss function. In contrast to previous research, we account for the time variation in the bias by making the loss function depend on the state of the economy. The asymmetry parameter in the loss function is specified to depend on set state variables which may cause forecaster to intentionally bias their forecasts. We consider both the Lin–Ex and asymmetric power loss functions. For the commonly used Lin–Ex and Lin–Lin loss functions, we show the model can be easily estimated by least squares. We apply our methodology to the consensus forecast of real U.S. GDP growth from the Survey of Professional Forecasters. We find that forecast uncertainty has an asymmetric effect on the asymmetry parameter in the loss function dependent upon whether the economy is in expansion or contraction. When the economy is in expansion, forecaster uncertainty is related to an overprediction in the median forecast of real GDP growth. In contrast, when the economy is in contraction, forecaster uncertainty is related to an underprediction in the median forecast of real GDP growth. Our results are robust to the particular loss function that is employed in the analysis.
Language eng
Field of Research 150202 Financial Econometrics
Socio Economic Objective 910103 Economic Growth
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Persistent URL http://hdl.handle.net/10536/DRO/DU:30062709

Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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