TY - JOUR
T1 - Multivariate asymmetric loss functions of the European Central Bank
AU - Tsuchiya, Yoichi
N1 - Funding Information:
This research was supported by a grant-in-aid from Zengin Foundation for Studies on Economics and Finance.
Publisher Copyright:
© 2020, © 2020 Informa UK Limited, trading as Taylor & Francis Group.
PY - 2020
Y1 - 2020
N2 - This study investigates asymmetric loss functions in the forecasts of real output growth and inflation published by the European Central Bank (ECB). In contrast to previous studies that examined each variable independently, this study evaluates the ECB forecasts in a multivariate framework, which accommodates the interaction of forecast errors of different forecast variables. The empirical results indicate that ECB is likely to produce under-predicted real output growth and over-predicted inflation forecasts for the current year. For the next-year forecast, ECB produces unbiased inflation forecast by applying multivariate framework, while the forecast of real output growth is over-predicted. Those forecasts are rational under multivariate asymmetric loss functions. Our results suggest that ECB attempts to maintain its credibility by providing unbiased inflation forecasts, and thus, puts first priority on price stabilization for medium term.
AB - This study investigates asymmetric loss functions in the forecasts of real output growth and inflation published by the European Central Bank (ECB). In contrast to previous studies that examined each variable independently, this study evaluates the ECB forecasts in a multivariate framework, which accommodates the interaction of forecast errors of different forecast variables. The empirical results indicate that ECB is likely to produce under-predicted real output growth and over-predicted inflation forecasts for the current year. For the next-year forecast, ECB produces unbiased inflation forecast by applying multivariate framework, while the forecast of real output growth is over-predicted. Those forecasts are rational under multivariate asymmetric loss functions. Our results suggest that ECB attempts to maintain its credibility by providing unbiased inflation forecasts, and thus, puts first priority on price stabilization for medium term.
KW - Monetary policy
KW - asymmetric loss
KW - central bank communication
KW - forecast evaluation
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U2 - 10.1080/13504851.2020.1795067
DO - 10.1080/13504851.2020.1795067
M3 - Article
AN - SCOPUS:85088242374
SP - 1
EP - 5
JO - Applied Economics Letters
JF - Applied Economics Letters
SN - 1350-4851
ER -