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Forecasting the Brazilian Real and the Mexican Peso: Asymmetric Loss, Forecast Rationality, and Forecaster Herding

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Author Info

  • Ulrich Fritsche

    ()
    (Department for Socioeconomics, Department for Economics, University of Hamburg)

  • Christian Pierdzioch

    ()
    (Helmut-Schmidt-University, Department of Economics)

  • Jan-Christoph Ruelke

    ()
    (WHU – Otto Beisheim School of Management)

  • Georg Stadtmann

    ()
    (University of Southern Denmark, Department of Business and Economics, and European-University Viadrina)

Abstract

Using forecasts of the Brazilian real and the Mexican peso, we analyze the shape of the loss function of exchange-rate forecasters and the rationality of their forecasts. We find a substantial degree of cross-sectional heterogeneity with respect to the shape of the loss function. While some forecasters seem to forecasts under an asymmetric loss function, symmetry of the loss function cannot be rejected for other forecasters. An asymmetric loss function does not necessarily make survey data of exchange-rate forecasts look rational, and the loss function seems to depend not only on the forecast error.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_2_2012.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 201202.

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Length: 29 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:hep:macppr:201202

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Web page: http://www.wiso.uni-hamburg.de/dwp
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Related research

Keywords: Exchange rate; Forecasting; Loss function;

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References

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  1. Dan Bernhardt & Murillo Campbello & Edward Kutsoati, 2002. "Who Herds?," Discussion Papers Series, Department of Economics, Tufts University 0213, Department of Economics, Tufts University.
  2. Benassy-Quere, Agnes & Larribeau, Sophie & MacDonald, Ronald, 2003. "Models of exchange rate expectations: how much heterogeneity?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(2), pages 113-136, April.
  3. Peter F. Christoffersen & Francis X. Diebold, 1997. "Optimal prediction under asymmetric loss," Working Papers 97-11, Federal Reserve Bank of Philadelphia.
  4. Joerg Doepke & Ulrich Fritsche & Boriss Siliverstovs, 2009. "Evaluating German Business Cycle Forecasts Under an Asymmetric Loss Function," Macroeconomics and Finance Series 200905, Hamburg University, Department Wirtschaft und Politik.
  5. Allan Timmermann & Andrew Patton, 2004. "Properties of Optimal Forecasts under Asymmetric Loss and Nonlinearity," Working Papers wp04-05, Warwick Business School, Finance Group.
  6. Dufour, J.M., 1979. "Rank Tests for Serial Dependence," Cahiers de recherche 7815, Universite de Montreal, Departement de sciences economiques.
  7. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
  8. MacDonald, Ronald, 2000. " Expectations Formation and Risk in Three Financial Markets: Surveying What the Surveys Say," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 69-100, February.
  9. Christian Pierdzioch & Jan-Christoph R�lke & Georg Stadtmann, 2012. "Exchange-rate forecasts and asymmetric loss: empirical evidence for the yen/dollar exchange rate," Applied Economics Letters, Taylor & Francis Journals, vol. 19(18), pages 1759-1763, December.
  10. G. A. Christodoulakis & E. C. Mamatzakis, 2009. "Assessing the prudence of economic forecasts in the EU," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(4), pages 583-606.
  11. David Laster & Paul Bennett & In Sun Geoum, 1999. "Rational Bias In Macroeconomic Forecasts," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 293-318, February.
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Cited by:
  1. Pierdzioch, Christian & Rülke, Jan-Christoph, 2013. "Do inflation targets anchor inflation expectations?," Economic Modelling, Elsevier, vol. 35(C), pages 214-223.

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