Asymmetric Loss and the Rationality of Inflation Forecasts: Evidence from South Korea

Young Bin Ahn, Yoichi Tsuchiya

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We examine asymmetry in the loss functions of South Korean consumers' and the Bank of Korea's (BOK) inflation forecasts, and test the rationality of these forecasts under the assumption of a possible asymmetric loss function. Under an asymmetric loss function, we find evidence of asymmetry and support for rationality. We also examine whether the BOK's forecasts incorporate respective forecasts and consensus forecasts efficiently. They broadly use available information efficiently, and their results are robust to inflation-targeting measures and the recent global financial crisis. However, our results suggest that the information efficiency of the BOK's forecasts for consumers was affected during the period 2007–2008.

Original languageEnglish
Pages (from-to)588-605
Number of pages18
JournalPacific Economic Review
Volume24
Issue number4
DOIs
Publication statusPublished - 2019 Oct 1
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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