Abstract
AbstractIn this paper, we study the bias in interest rate projections of five central banks, namely the central banks of the Czech Republic, New Zealand, Norway, Sweden, and the USA. We examine whether central bank projections are based on an asymmetric loss function and report evidence that central banks perceive an overprojection of their longer-term interest rate forecasts as twice as costly as an underprojection of the same size. We find that forecast rationality is consistent with biased interest rate projections under the assumption of an asymmetric loss function, which contributes to explaining the behavior of the examined central banks and their forecasts.
Funder
WHU - Otto Beisheim School of Management
Publisher
Springer Science and Business Media LLC
Subject
Economics and Econometrics,Social Sciences (miscellaneous),Mathematics (miscellaneous),Statistics and Probability
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