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The Rationality of USDA Forecasts under Multivariate Asymmetric Loss
Author(s) -
Bora Siddhartha S.,
Katchova Ani L.,
Kuethe Todd H.
Publication year - 2021
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/ajae.12142
Subject(s) - econometrics , economics , multivariate statistics , rationality , cash , function (biology) , rational expectations , mathematics , statistics , finance , evolutionary biology , political science , law , biology
A large number of previous studies suggest that many USDA forecasts are biased and/or inefficient. These findings, however, may be the result of the assumed loss function of USDA forecasters. We test the rationality of the USDA net cash income forecasts and the WASDE production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non‐separable forecast errors. Our results provide robust evidence that USDA forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under‐ or overprediction. As a result, this study provides an alternate interpretation of previous findings of forecast irrationality.