A0453
Title: Asymmetric loss and financial market forecasts
Authors: Julie Bennett - Duke University (United States) [presenting]
Michael Owyang - Federal Reserve Bank of St Louis (United States)
Abstract: The relationship between inflation and interest rate forecasts made by financial markets is evaluated. Using forecast rationality testing under univariate and multivariate asymmetric loss functions, evidence is found that financial market forecasts of inflation are made conditional on the expected path of monetary policy. Further, it is found that the degree of asymmetry financial markets exhibit depends on the current level of the inflation rate. These results provide context for how financial market forecasts should be interpreted and incorporated into larger economic models.
