Evaluating German Business Cycle Forecasts Under an Asymmetric Loss Function

KOF Swiss Economic Institute Working Paper No. 237

31 Pages Posted: 29 Sep 2009

See all articles by Ulrich Fritsche

Ulrich Fritsche

German Institute for Economic Research (DIW Berlin)

Boriss Siliverstovs

German Institute for Economic Research (DIW Berlin) - Department of International Economics

Jörg Döpke

University of Applied Sciences Merseburg

Date Written: August 1, 2009

Abstract

Based on annual data for growth and inflation forecasts for Germany covering the time span from 1970 to 2007 and up to 17 different forecasts per year, we test for a possible asymmetry of the forecasters' loss function and estimate the degree of asymmetry for each forecasting institution using the approach of Elliot et al. (2005). Furthermore, we test for the rationality of the forecasts under the assumption of a possibly asymmetric loss function and for the features of an optimal forecast under the assumption of a generalized loss function. We find evidence for the existence of an asymmetric loss function of German forecasters only in case of pooled data and a quad-quad loss function. We cannot reject the hypothesis of rationality of the growth forecasts based on data for single institutions, but based on a pooled data set. The rationality of inflation forecasts frequently is rejected in case of single institutions and also for pooled data.

Keywords: Business cycle forecast evaluation, asymmetric loss function, rational expectations

JEL Classification: C53, E42

Suggested Citation

Fritsche, Ulrich and Siliverstovs, Boriss and Döpke, Jörg, Evaluating German Business Cycle Forecasts Under an Asymmetric Loss Function (August 1, 2009). KOF Swiss Economic Institute Working Paper No. 237, Available at SSRN: https://ssrn.com/abstract=1479554 or http://dx.doi.org/10.2139/ssrn.1479554

Ulrich Fritsche (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Boriss Siliverstovs

German Institute for Economic Research (DIW Berlin) - Department of International Economics ( email )

Mohrenstraße 58
Berlin, 10117
Germany

HOME PAGE: http://www.diw.de/programme/jsp/MA.jsp?language=en&uid=bsiliverstovs

Jörg Döpke

University of Applied Sciences Merseburg ( email )

Eberhard-Leibnitz-Straße 2
Merseburg, D-06217
Germany

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