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An example of an optimal forecast exhibiting decreasing bias with increasing forecast horizon

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An example of an optimal forecast exhibiting decreasing bias with increasing forecast horizon. / Aretz, Kevin; Peel, David.

In: Bulletin of Economic Research, Vol. 65, No. 4, 10.2013, p. 362-371.

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@article{3fe8144e41124f0fb99cb19d5eecda5f,
title = "An example of an optimal forecast exhibiting decreasing bias with increasing forecast horizon",
abstract = "Motivated by a central banker with an inflation target, we show that the optimal forecast bias under non-quadratic loss functions and non-normal forecast errors can decrease or initially increase and then decrease with the forecast horizon. We initially proof that, if the variable to forecast can be described by a generalized Rayleigh distribution, its conditional mean does in general not constitute the optimal prediction under a symmetric target zone loss function. Subsequently, we approximate the target zone loss function to show the potential for variation in optimal bias over the forecast horizon.",
keywords = "efficient markets, forecast evaluation, loss function, rationality",
author = "Kevin Aretz and David Peel",
year = "2013",
month = oct,
doi = "10.1111/j.1467-8586.2010.00383.x",
language = "English",
volume = "65",
pages = "362--371",
journal = "Bulletin of Economic Research",
issn = "0307-3378",
publisher = "Wiley-Blackwell",
number = "4",

}

RIS

TY - JOUR

T1 - An example of an optimal forecast exhibiting decreasing bias with increasing forecast horizon

AU - Aretz, Kevin

AU - Peel, David

PY - 2013/10

Y1 - 2013/10

N2 - Motivated by a central banker with an inflation target, we show that the optimal forecast bias under non-quadratic loss functions and non-normal forecast errors can decrease or initially increase and then decrease with the forecast horizon. We initially proof that, if the variable to forecast can be described by a generalized Rayleigh distribution, its conditional mean does in general not constitute the optimal prediction under a symmetric target zone loss function. Subsequently, we approximate the target zone loss function to show the potential for variation in optimal bias over the forecast horizon.

AB - Motivated by a central banker with an inflation target, we show that the optimal forecast bias under non-quadratic loss functions and non-normal forecast errors can decrease or initially increase and then decrease with the forecast horizon. We initially proof that, if the variable to forecast can be described by a generalized Rayleigh distribution, its conditional mean does in general not constitute the optimal prediction under a symmetric target zone loss function. Subsequently, we approximate the target zone loss function to show the potential for variation in optimal bias over the forecast horizon.

KW - efficient markets

KW - forecast evaluation

KW - loss function

KW - rationality

U2 - 10.1111/j.1467-8586.2010.00383.x

DO - 10.1111/j.1467-8586.2010.00383.x

M3 - Journal article

VL - 65

SP - 362

EP - 371

JO - Bulletin of Economic Research

JF - Bulletin of Economic Research

SN - 0307-3378

IS - 4

ER -