nep-for 2017-05-28 papers

on Forecasting

Issue of 2017‒05‒28
two papers chosen by
Rob J Hyndman
Monash University

Forecaster Rationality and Expectation Formation in Foreign Exchange Markets: Do Emerging Markets Differ from Industrialized Economies? By Michael Frenkel; Matthias Mauch; Jan-Christoph Rülke
Generalizing Smooth Transition Autoregressions By Emilio Zanetti Chini

Forecaster Rationality and Expectation Formation in Foreign Exchange Markets: Do Emerging Markets Differ from Industrialized Economies?

By:	Michael Frenkel; Matthias Mauch; Jan-Christoph Rülke
Abstract:	This paper uses the Consensus Economic Forecast poll to investigate how forecasters in the foreign exchange market form expectations. In order to explain the expectation formation of forecasters, around 50,000 forecasts for 22 OECD-member currencies are analyzed. The results indicate that forecasters do not form expectations rationally when tested for unbiasedness and orthogonality. The results also suggest that forecasts for industrialized economies show a mix of trend-following and fundamentally-oriented behavior. By contrast, forecasts for emerging markets show significantly more destabilizing expectations. We find forecasting tendencies to strengthen in the short-run and medium-run when controlling for the Balassa-Samuelson effect. For long-run forecasts however this can not be confirmed.
Keywords:	Foreign exchange, forecast bias, expectation formation, chartist, fundamentalist, Balassa-Samuelson
JEL:	F31 D84 C33
Date:	2017–04–26
URL:	http://d.repec.org/n?u=RePEc:whu:wpaper:17-04&r=for

Generalizing Smooth Transition Autoregressions

By:	Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
Abstract:	We introduce a new time series model capable to parametrize the joint asymmetry in duration and length of cycles - the dynamic asymmetry - by using a particular generalization of the logistic function. The modelling strategy is discussed in detail, with particular emphasis on two asymmetry tests and relative diagnostics, whose power properties are explored via Monte Carlo experiments. Several case studies illustrate the high versatility of the new model, which is able to characterize the dynamic asymmetry in the cycle in different fields. In a rolling forecasting exercise our model beats its linear and conventional nonlinear competitors in point forecasting, while this superiority becomes less evident in density forecasting, specially when relying on robust measures. Finally, dynamic asymmetry is an important feature to take in account in uncertain environments.
Keywords:	trend inflation, monetary-fiscal policy interactions, Markov-switching, determinacy Dynamic asymmetry, Nonlinear time series, Econometric Modelling, Point forecasts, Density forecasts, Evaluating forecasts, Combining forecasts, Uncertainty.
JEL:	C22 C51 C52
Date:	2017–05
URL:	http://d.repec.org/n?u=RePEc:pav:demwpp:demwp0138&r=for

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