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Asymmetric Loss and the Rationality of Inflation Forecasts: Evidence from South Korea
Author(s) -
Ahn Young Bin,
Tsuchiya Yoichi
Publication year - 2019
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12214
Subject(s) - rationality , economics , inflation (cosmology) , information asymmetry , asymmetry , function (biology) , financial crisis , econometrics , monetary economics , financial economics , macroeconomics , microeconomics , physics , quantum mechanics , evolutionary biology , theoretical physics , political science , law , biology
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.