On policymakers’ loss functions and the evaluation of early warning systems: Comment. Alessi, L. & Detken, C. Economics Letters.
On policymakers’ loss functions and the evaluation of early warning systems: Comment [link]Paper  doi  abstract   bibtex   
Sarlin (2013) suggests that if a loss function approach is chosen to derive the optimal threshold for financial crisis early warning indicators, the loss function specification should explicitly take into account the unconditional sample crisis probability. In this comment we argue that this approach is not robust to small perturbations of the preference parameter and is not easy to use for policy purposes. We suggest therefore to continue using a simpler loss function specification.
@article{alessi_policymakers_????,
	title = {On policymakers’ loss functions and the evaluation of early warning systems: {Comment}},
	issn = {0165-1765},
	shorttitle = {On policymakers’ loss functions and the evaluation of early warning systems},
	url = {http://www.sciencedirect.com/science/article/pii/S0165176514002262},
	doi = {10.1016/j.econlet.2014.06.015},
	abstract = {Sarlin (2013) suggests that if a loss function approach is chosen to derive the optimal threshold for financial crisis early warning indicators, the loss function specification should explicitly take into account the unconditional sample crisis probability. In this comment we argue that this approach is not robust to small perturbations of the preference parameter and is not easy to use for policy purposes. We suggest therefore to continue using a simpler loss function specification.},
	urldate = {2014-06-27},
	journal = {Economics Letters},
	author = {Alessi, Lucia and Detken, Carsten},
	keywords = {Early warning systems, Policymakers’ loss function, Policymakers’ preferences},
	file = {ScienceDirect Full Text PDF:files/49356/Alessi and Detken - On policymakers’ loss functions and the evaluation.pdf:application/pdf;ScienceDirect Snapshot:files/49357/S0165176514002262.html:text/html}
}

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