THE EUROPEAN UNION GDP FORECAST RATIONALITY UNDER ASYMMETRIC PREFERENCES
George A. Christodoulakis
Manchester Business School and Bank of Greece
Emmanuel C. Mamatzakis
University of Athens and Ministry of Economy & Finance of Greece
ABSTRACT
EU Commission forecasts are used as a benchmark within the framework of Stability and Growth Pact, aiming at providing a prudential view of economic outlook, especially for Member States in an Excessive Deficit Procedure. Following a newly established method by Elliott et al (2005), we assess the preference asymmetries and rationality of the Commission’s GDP growth forecasts from 1969-2004. Our empirical evidence is robust across information sets and shows that the loss preferences and rationality tend to vary across large vis-à-vis small Member States and seem not to be always consistent with a prudent view of economic forecasting.
Keywords: Asymmetric Loss Preferences, Forecast Rationality, GDP Growth Forecasts, GMM Estimation, Lin-Lin.
JEL classification: C1, C44, C53, E17, E27
The authors would like to thank Heather Gibson, Steve Satchell, George Tavlas, Allan Timmermann, C.R.E.T.E. conference participants in Syros 2005 and seminar participants at the University of Macedonia for helpful comments. The views expressed in this paper are those of the authors and should in no part be attributed to the Bank of Greece or the Ministry of Economy & Finance of Greece.
George A. Christodoulakis,
Advisor to the Governor,
Bank of Greece, 21, E. Venizelos Ave.,
102-50, Athens, Greece
Tel: +30-210-320 5006, Fax: +30-210-3205427
E-mail: gchristodoulakis@bankofgreece.gr