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The Rationality of USDA Forecasts under Multivariate Asymmetric Loss

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  • Siddhartha S. Bora
  • Ani L. Katchova
  • Todd H. Kuethe

Abstract

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.

Suggested Citation

  • Siddhartha S. Bora & Ani L. Katchova & Todd H. Kuethe, 2021. "The Rationality of USDA Forecasts under Multivariate Asymmetric Loss," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(3), pages 1006-1033, May.
    • Handle: RePEc:wly:ajagec:v:103:y:2021:i:3:p:1006-1033
    DOI: 10.1111/ajae.12142
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    5. Kexin Ding & Ani L. Katchova, 2024. "Testing the optimality of USDA's WASDE forecasts under unknown loss," Agribusiness, John Wiley & Sons, Ltd., vol. 40(4), pages 846-865, October.

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