Forecasting the South African Inflation Rate: On Asymmetric Loss and Forecast Rationality

Stellenbosch Working Paper Series No. WP26/2014
 
Publication date: 2014
 
Author(s):
[protected email address] (Department of Economics, Helmut-Schmidt-University)
[protected email address] (Department of Economics, University of Stellenbosch)
[protected email address] (Department of Economics, University of Pretoria)
 
Abstract:

Using forecasts of the inflation rate in South Africa, we study the rationality of forecasts and the shape of forecasters’ loss function. When we study micro-level data of individual forecasts, we find mixed evidence of an asymmetric loss function, suggesting that inflation forecasters are heterogeneous with respect to the shape of their loss function. We also find strong evidence that inflation forecasts are in line with forecast rationality. When we pool the data, and study sectoral inflation forecasts of financial analysts, trade unions, and the business sector, we find evidence for asymmetry in the loss function, and against forecast rationality. Upon comparing the micro-level results with those for pooled and sectoral data, we conclude that forecast rationality should be assessed based on micro-level data, and that freer access to this data would allow more rigorous analysis and discussion of the information content of the surveys.

 
JEL Classification:

C53, D82, E37

Keywords:

inflation rate, forecasting, loss function, rationality

Notes:

Published as: Christian Pierdzioch, Monique B. Reid & Rangan Gupta (2017), On the directional accuracy of inflation forecasts: evidence from South African survey data, Journal of Applied Statistics, DOI: 10.1080/02664763.2017.1322556
Link: http://www.tandfonline.com/doi/full/10.1080/02664763.2017.1322556

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BER Weekly

11 November 2019
Notwithstanding the apparent optimism surrounding President Cyril Ramaphosa's second Investment Conference last week, economic data released for Q3 disappointed. The consumer turned notably more pessimistic during the quarter, while the latest activity data from the country's secondary sector also paints a dismal picture for GDP. On the global front,...

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