The Rationality of USDA Forecasts under Multivariate Asymmetric Loss

A large number of previous studies suggest that many USDA forecasts are biased and/or inefficient. These findings, however, may be the result of the assumed loss function of USDA forecasters. We test the rationality of the USDA net cash income forecasts and the WASDE production and price forecasts b...

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Bibliographic Details
Published in:American journal of agricultural economics 2021-05, Vol.103 (3), p.1006-1033
Main Authors: Bora, Siddhartha S., Katchova, Ani L., Kuethe, Todd H.
Format: Article
Language:English
Subjects:
Agricultural economics
asymmetric loss
Asymmetry
Bias
D84
E37
fixed‐event forecasts
forecast rationality
Forecasting
Irrationality
Multivariate analysis
net cash income
Q11
Q12
Q13
Q14
Rationality
WASDE
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Summary:A large number of previous studies suggest that many USDA forecasts are biased and/or inefficient. These findings, however, may be the result of the assumed loss function of USDA forecasters. We test the rationality of the USDA net cash income forecasts and the WASDE production and price forecasts between 1988 and 2018 using a flexible multivariate loss function that allows for asymmetric loss and non‐separable forecast errors. Our results provide robust evidence that USDA forecasters are rational expected loss minimizers yet demonstrate a tendency to place a greater weight on under‐ or overprediction. As a result, this study provides an alternate interpretation of previous findings of forecast irrationality.
ISSN:0002-9092
1467-8276
DOI:10.1111/ajae.12142