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Some implications of a quartic loss function

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Some implications of a quartic loss function. / Aretz, Kevin; Peel, David.

In: Economics Bulletin, Vol. 7, No. 13, 20.08.2007, p. 1-7.

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Aretz K, Peel D. Some implications of a quartic loss function. Economics Bulletin. 2007 Aug 20;7(13):1-7.

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Aretz, Kevin ; Peel, David. / Some implications of a quartic loss function. In: Economics Bulletin. 2007 ; Vol. 7, No. 13. pp. 1-7.

Bibtex

@article{ad448784ad4a45f58109ebbb2b494734,
title = "Some implications of a quartic loss function",
abstract = "Motivated by a central banker with a symmetric but non-quadratic loss function, we show in this note that the approximations of two plausible loss functions of this type will include a quartic term. For skewed distributions, we establish that such a loss function implies a systematic inflation bias even when the bank targets the natural rate. Moreover, we show that the weights in an optimal combination of forecasts will differ from that under quadratic loss. We illustrate these differences using simulated data and data from the Livingston Surveys of Professional Forecasters.",
author = "Kevin Aretz and David Peel",
year = "2007",
month = aug,
day = "20",
language = "English",
volume = "7",
pages = "1--7",
journal = "Economics Bulletin",
issn = "1545-2921",
publisher = "Economics Bulletin",
number = "13",

}

RIS

TY - JOUR

T1 - Some implications of a quartic loss function

AU - Aretz, Kevin

AU - Peel, David

PY - 2007/8/20

Y1 - 2007/8/20

N2 - Motivated by a central banker with a symmetric but non-quadratic loss function, we show in this note that the approximations of two plausible loss functions of this type will include a quartic term. For skewed distributions, we establish that such a loss function implies a systematic inflation bias even when the bank targets the natural rate. Moreover, we show that the weights in an optimal combination of forecasts will differ from that under quadratic loss. We illustrate these differences using simulated data and data from the Livingston Surveys of Professional Forecasters.

AB - Motivated by a central banker with a symmetric but non-quadratic loss function, we show in this note that the approximations of two plausible loss functions of this type will include a quartic term. For skewed distributions, we establish that such a loss function implies a systematic inflation bias even when the bank targets the natural rate. Moreover, we show that the weights in an optimal combination of forecasts will differ from that under quadratic loss. We illustrate these differences using simulated data and data from the Livingston Surveys of Professional Forecasters.

M3 - Journal article

VL - 7

SP - 1

EP - 7

JO - Economics Bulletin

JF - Economics Bulletin

SN - 1545-2921

IS - 13

ER -